Overcome Home Equity Line of Credit Freeze during the Credit Crunch

In the real estate boom times, home equity lines of credit (HELOC) were as accessible as air. It seemed as if every homeowner had a equity line. It was not uncommon for consumers to open lines of credits with their banks in order to make home renovations, make purchases or pay for college education. Also, many homeowners simply opened credit lines to meet future emergency needs. However, due to the credit crunch many banks and other financial lenders have frozen existing HELOCs.

Thousands have been shut off from their HELOCs. Equity lenders are busy trying to recover losses stemming from subprime mortgages meltdown, adjustable rate mortgages letdown, and rising foreclosures.

Mortgage delinquencies are continually rising; projected to jump higher next year. Earlier this year, the nation’s largest mortgage lender, Countrywide suspended 122,000 lines of credit, USAA has frozen some 15,000 lines, and big financial institutions followed suit.

However, the suspension of HELOCs is not an across the board action but taken on a case by case basis.
During the residential real estate boom, a homeowner could easily borrow up to 100% of the residence’s market value through a combination of a first mortgage and an equity line of credit; this is no longer the case.

The rules of the game have changed, mortgage lenders are enforcing mortgage loan standards, in the past many of the standard practices were fair game. It might be worth getting a HELOC before a freeze is imposed. However, access the line of credit only if it is critical to maintaining your financial health.

At present, lenders are looking for reasons to reduce or freeze your credit line; hence they are scrutinizing credit scores, missed payments, and more. Herein, avoid getting on the radar of the mortgage lender.

If the residential real estate market keeps heading south, this will cut into your equity. Some experts are advising equity borrowers to access the needed funds and place them in a high-yielding savings account, draw upon the money as the bills come due. If you are having a tough time getting a new HELOC or accessing a current one, start shopping around. Remember to access HELOCs only in emergencies, not for consumerism.