Your Equity Line May Be Frozen (and you may not know it.)

Banks are sending notices to homeowners advising them that their home equity lines have been frozen or reduced to a lesser amount.

If you have an unused equity line, it may be at risk.

Recently, I have received several phone calls from clients who have already received such notices.  As a mortgage consultant, I felt very strongly that I share this important information with my clients immediately.

Banks are taking huge write downs and losses as a result of poor lending practices and high foreclosure rates throughout America.  As their stock values continue to plummet, banks are being forced to change their credit policy and lending guidelines faster than they can communicate.    While it's easy to understand their defensive repositioning, many homeowners are being caught off guard when their bank refuses to honor an equity check or a request for funds to be drawn. 

• If you believe that you may need to access available funds on your equity line then I would strongly urge you to look at your loan agreement to see if it contains any language that would permit the bank to freeze or reduce your line of credit. 

• If so, you may want to consider whether or not it makes sense to draw down any of the remaining funds on your equity line.  While I would not normally make such a recommendation, this may be the only option available for some people that have a need for liquidity.  However this action would have to be carefully evaluated against the cost of the payments and the overall impact on your equity position in your home versus declining property values.   

Please consult your CPA, Financial planner or my office at SCV Loan Solutions if you need guidance with this decision.