Wells Fargo (NYSE: WFC) has sent out over thousands of letters to customers informing them that their home equity line of credit limits and other personal credit limits would be trimmed in order to prevent additional losses to the bank.
In the “dear valued customer” letters that Wells Fargo is sending out to their customers, they are often citing a decline of the value of the customer’s home as the reason their home equity line of credit is being cut. Often these decisions are based on broad estimates of property values for a given area rather than an individual appraisal of a home.
A corporate spokesman would not confirm that Wells Fargo had sent out letters to customers indicating that their lines of credit would be cut. In the statement the bank made, Wells Fargo & Co said that it “conducts periodic reviews of home equity lines of credit to help make sure that the limit on the account is in line with the borrower’s financial condition. In some instances we determine that a borrower’s credit profile has adversely changed and that further draws on the account should not occur or we need to reduce the commitment amount.”
Wells Fargo appears to be taking a shoot first and ask questions later approach, by arbitrary cutting credit lines based on macroeconomic data, then re-evaluating customer’s credit line on an individual basis if a customer takes issue with the cut. This approach allows the ban to cut their credit lines without doing expensive appraisals of individual home values while providing customers a way to demonstrate that they are still credit worthy.
Some of the major names in banking have been cutting credit lines in order to limit their exposure to consumer and small business debt for some time to come. Meredith Whitney, a banking analyst formerly with Oppenheimer & Co predicted that as much as $2 trillion in credit lines might be eliminated as top banks try to clean up their books from the financial crisis.
