Is Your HELOC In Danger Of Being Frozen?

If you have an open home equity line of credit you were counting on for renovations or other projects, you might want to read CNN Money’s article about how lenders are freezing them around the country. The main triggers for HELOC freezing are credit score changes and a rapid drop in home value in your area. The freeze may also be a computer-determined action, so if your HELOC suddenly goes away and you don’t think it was justified, it may be worth checking your FICO score and then contacting the lender to reopen the line or renegotiate it.

“When a HELOC freezes over” [Money]
(Photo: Getty)

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  1. laserjobs says:

    Another solution is earn and save your money rather than using some BS credit line.

  2. ChuckECheese says:

    How will I buy venti lattes if the bank freezes my line of credit?

  3. @laserjobs: Yeah, why should people be allowed to pull a reasonable amount of equity out of their own investments?

  4. Ass_Cobra says:

    If the equity isn’t there, the equity isn’t there.

  5. @ceejeemcbeegee: Uh, because they’re wasting the money and getting overextended to the point where the banks are left holding the bag? Sure would be interesting if more people would live within their means. Heck, we might have ourselves a history-making economic upheaval if that were to happen.

  6. royceguy says:

    I got one of those letters two months ago. I got another one this week reinstating it. I didn’t complain or anything…they just apparently decided they’d reactivate it. Very strange since I’m sure the equity isn’t there anymore. I wonder if the fact that I don’t use it and only have it for huge emergencies contributed.

    BTW, having a HELOC doesn’t mean you’re living outside your means or you’re irresponsible. Maybe I just took advantage of idiotic mortgage banks to give myself a safety net in the event I got hit by a bus or something. Hey maybe I can use it to start buying forclosed homes!!!

  7. Silversmok3 says:

    Not everyone who opens a HELOC is a fiscal criminal.

    That said,my question is this:Why is this a surprise ?Didn’t those folks read what they signed? If youre HELOC gets cut off, chances are somewhere in the loan paperwork it said thats gonna happen if your credit score/equity changes.

    Its like being surprised when your Chase Platinum mysteriously jacks up the interest b/c of one late payment.

  8. drjayphd says:

    @johnarlington: I think I’ve got it… I buy something I want, and then hope that I can pay for it, right?

  9. @Steaming Pile: I said a “reasonable” amount. Taking our a couple thousand to fix a leaky roof is very different than borrowing $50K to pay off credit card bills.

    There ARE responsible ways to borrow money.

  10. LorneReams says:

    I looked through my HELOC contract twice now and see no provision that allows them to freeze the line save for severe delinquency. I have a draw period of 10 years and nothing can contractually change that from their end. Were some written with this provision spelled out somewhere?

  11. burgundyyears says:

    Your house is not an ATM. That is all.

  12. @ceejeemcbeegee: You know that, and so do I, but this argument is the same one people used to use to try and convince people Bush’s scheme to shift Social Security funds to the stock market was somehow a good idea. “I can invest the money better than SS can.” Sure. YOU can. Most people can’t, and that’s why the system is set up like it is. Same with HELOCs. Your house was never meant to be an ATM, no matter what Countrywide or whoever used to say. Your equity evaporates, so does your security, and there goes your credit line. Home equity is a theoretical concept, and people are just now figuring this out. Not YOU; I said PEOPLE in general.

  13. meadandale says:

    In the past, people typically used home equity pretty much only for things like home improvement (or the occasional bail bond).

    These days, people are using their homes equity like an ATM that never runs out of cash to buy cars, vacations, bigger boobs or whatever.

    People forget, the ATM only dispenses cash when your houses ‘value’ exceeds what you owe on it. There is nothing wrong with a bank pulling a HELOC if you owe more on your house than it is worth.

    I agree with the cash comment(s) above. I do all of my home improvement with money I’ve SAVED (including the $5k I just spent on a new roof).

  14. mzs says:

    @meadandale: Then there is us, had $20K in the bank. Bought a house from ‘good Christian people’ as the neighbors said without knowing all that the inspector missed. After it took $30K to keep the water from the outside outside and the water in the pipes inside the pipes, what are we supposed to do other than use a HELOC?

  15. candace21 says:

    You should be somewhat safe as long as you don’t have a HELOC with a large lender in San Diego. Here’s the full list of the people freezing HELOCs: [www.helocbasics.com]

  16. candace21 says:

    According to [consumerist.com] Countrywide has sent over 128,000 notices so far. Chase seems to be the lender sending out the second most notices.

  17. rekoil says:

    We just got one of these letters ourselves from National City suspending our HELOC – the HELOC we were about to draw from to redo our kitchen. Never mind that I don’t know how we’re going to remodel now, there are several problems with their methodology here:

    - The letter claims an appraised value on our house that is substantially less than what two other houses in our complex (townhomes, all with similar floorplans) sold for in the past three months. Both of which are more than what we paid for the house four years ago – there’s been no decline here.

    - The limit on our HELOC is quite large, but even with their reduced appraisal value, we’d still have substantial equity in the house. If the total is above their (probably updated) equity percentage requirements, why not consider lowering the limit instead of cutting it off altogether?

    - The letter states that in order to appeal, we have to pay for a re-appraisal. I’d be OK with paying upfront if they were willing to reimburse if they reinstate, but having to pay money to show them they’re wrong just reeks of bad business.

    Yeah, pissed now.