A few calls have come in recently from clients concerned about notices they've received from their lenders. These notices stated that the lender was either FREEZING the credit line or the credit line limit had been reduced.
I guess this shouldn't be a surprise; lenders need to make sure the borrower has some "skin in the game". As a foreclosure officer in a previous life, so to speak, many of our borrowers in the crazy eighties pulled all the equity out of their homes and walked away. Needless to say, this was devastating to the investors.
What will happen to the homeowner who opened a credit line for emergencies? Well it will definitely reduce their options, but this may be a good thing. I have a client who needs a loan modification. The client was looking to open a line of credit a few of years ago, but didn't qualify. Had that client been successful, they would be losing their home right now. My client had to figure out how to raise the money they needed without dipping into the home equity "piggybank".
If you currently use your home equity line of credit (HELOC) as a cash float for your business, you might consider "parking" this cash in a high yield savings account to offset and minimize the interest you will pay on the HELOC.
The changes seem to be affecting homeowners who have less than 20% equity in their homes or live in markets where the home values are declining.
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