I hate to say I told you so, but one of my new pet peeves are these mortgage acceleration programs.  They go by snappy names like, MMA, or Mortgage Checking account.  Never the less they are Home Equity Lines of Credit, and with falling market values the banks are beginning to shut them down.

Countrywide article

Why is this the wrong time to get an equity line?  Because hidden within the closing paperwork is a clause that allows the bank to freeze or reduce available credit or equity.  They are following through with enforcement of this clause as you have witnessed through my Countrywide link above.  Normally they'll shut down someones equity line when they are delinquent, but if market values are falling across the board the bank is going to act to preserve it's interest.  

So it's just Countrywide...no, other lenders are following suit in their own way.  JP Morgan will not approve equity lines now over 80% LTV, and drive by appraisals are now a wishful thought in most markets.  Some major banks are still allowing higher LTV HELOCS but consumers options are decreasing each day.

Though Countrywide states in this article that this is a temporary restriction, the question is how long?  

For those whom still think it's wiser to use their HELOC or mortgage accelerator account to pay down their mortgage, think again.  What happens when you pay down your first and the bank shuts down the rest of your equity line?  There are serious problems with this mortgage acceleration product.  Due to the fact we haven't gone through such a brutal adjustment the judgment of this mortgage professional is that mortgage merge accounts are at present dangerous!

If your not convinced yet, let me ask this question.  If I was sitting in my hypothetical San Diego County home that in 2005 appraised for 550k, and I took out a HELOC for 50k, with a first mortgage of 450k, and in two years I paid down the first to 375k, I'd think I was doing well.  But then in 2006 and 2007 my value has plummeted on this home to 395k, and my first mortgage and HELOC are now 400k, now I'm upside down.  And just for fun, let's just pretend that I found out that my job was being relocated to India.  Now what reserves do I have to pay my mortgage and lifestyle?  I can't even dip into my Equity line, because Countrywide froze it!  Yeah, that 50k would come in handy right now, too bad it wasn't taken out and invested in a safe fund, CD, or money market fund.  

Here's the bottom line, if your considering the mortgage accelerator (MMA, MCA, or any other name its called), then please use extreme caution.  You may live in a good real estate market, but unfortunately the problems in Florida and California are of such magnitude that it can often affect banks nationally, which of course is what were seeing now with Countrywide and JP Morgan.  Unfortunately I have the sinking feeling that we're not close to the end of the tunnel either.