Last Monday I saw a report on a website with an article about Lenders pulling the plug on their HELOCs ( Home Equity Loans). One of my friends panicked and pulled a quick 100k out of his credit line in case he needed the cash. Today, there is an article in the Broker Agent news detailing more of these scenarios. I don't believe the state of Hawaii is at risk currently, but one never knows. Anyway, the essence of the volatility is that say you have established a HELOC for $100,000 which was created for whatever reason, and you owe a small sum, say $5,000 on it. If the lenders determine that your equity has diminished enough, they may call you and immediately cancel the other 95K  of credit. There's nothing that i know of that you can do about it.

There was also further news today about Countrywide and the amount of pay option loans in their portfolio. The article about Countrywide on CNN Money states that of the $29 Billion ( I love how these large lenders throw around the B word), $26 Billion of the loans have grown beyond their original loan amount. That means that borrowers are making a payment that is less than the fully amortized payment ( that's the main attraction of the pay option ARM) and each month, with negative amortization, the borrowers loan amount is growing.

Where will this merry-go-round stop? It's anyone's guess. If you live in an area with significantly declining values, and you have a HELOC for a rainy day, you might want to go and get the cash while you can. Of course you will pay the HELOC rates for the loan. Make the decision that best supports your fiscal wellness.