May 7, 2008

Freezes on Home Equity Lines of Credits

With the uncertainty in the real estate market many people that might have been contemplating upgrading are staying put. Home sale volume is down significantly nationwide. If you still need more room or just want nicer digs, you might be thinking about digging into that home equity line of credit to renovate or expand your current place. Think again - many banks are putting the kibosh on HELOCs they gave out when the housing market was doing better… or as this blogger Brian Brady says, the banks “picked up their marbles and went home like spoiled children”.

Probably the most annoying thing about the whole situation is that it appears to be a desperate knee jerk reaction with broad brush policy as opposed to only targeting based on credit rating or delinquent payment. 

From Mercury News:

Not only are banks less willing to issue popular home equity lines of credit, but some of the nation’s biggest lenders are freezing existing loans.

Countrywide Home Loans, for example, has sent letters to at least 122,000 homeowners nationwide informing them that they can no longer draw on their home equity lines of credit. Many homeowners rely on these pay-as-you-use-them loans to finance things like remodeling or college tuition, or to use for emergency expenses.

Morgan Hill homeowner Kelly Urbina received a letter from Countrywide two weeks ago telling her she can no longer access the credit line that she says the lender encouraged her to get when she bought her three-bedroom home in 2006.

“I still have a substantial amount of equity in my property, so I was surprised to get a letter that just said ‘we’re going to suspend your line,’ ” said Urbina, who works as an underwriter for Opes Advisors, a mortgage banking and wealth management firm in Palo Alto. She knows the value of her property has dropped somewhat, but not “significantly,” as Countrywide claimed in the letter.