National City Bank is desperate for capital. Evidence can be found in the Financial Times story National City offers cash to cut equity lines.
National City (NCC), the US bank that has been among the hardest hit by the subprime crisis, is trying to reduce its exposure to the riskiest category of home loans by offering customers cash to close their untapped home equity lines.
Lenders such as National City have tightened their lending standards and reduced lending volumes sharply, but portfolio exposures could still grow as a result of so-called “open-ended” home equity lines that are committed but as yet undrawn. The bank’s initiative, which was launched at the end of July, encourages National City customers to surrender their unused home equity lines by waiving fees it would normally charge for closing the line and by writing customers a $200 cheque.
“We are giving customers an opportunity to close their lines without incurring termination fees and then we give them a reward to thank them for their business,” said National City.
The bank’s customers are normally charged up to $350 to close a home equity line.
Some banks, such as Bank of America, Wachovia and Chase, have frozen borrowers’ access to home equity lines or changed the terms to reduce their potential home equity exposure.
National City’s scheme in essence buys back the borrower’s right to access the line, and reduces the bank’s exposure to lending money against houses that have fallen in value.
The bank declined to comment on whether the bank was targeting borrowers in a particular region or with any particular credit characteristics, but it added that customers were thus far “responding well” to the scheme.
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