Countrywide Freezes HELOCs, Says "It's Not You, It's Your Home"

Eric writes:

I received a letter from my mortgage lender Countrywide yesterday that they are permanently suspending further draws against my home equity line of credit. Their rationale is that home prices in my area have dropped significantly and that if I borrow further against my home, I might not be able to pay it off.

The home equity loan in question here is a part of a 80/10/10 mortgage I took out 5 years ago to avoid PMI while only putting 10% down.

It should be noted that:

  • In the 5 years I have lived there, I have never missed a payment, and in fact most months paid more than the required amount.
  • The estimated value at Zillow.com is down only 4% from the purchase price 5 years ago
  • The mortgage/HELOC combination is not “under water”
  • Even if I were to draw my HELOC up to its limit, the mortgage/HELOC would still not be underwater. The house price would have to drop another 15% before I owed more on it than it was worth.
  • My credit is spotless, and I am still gainfully employed.
  • I’ve never actually drawn against the HELOC, other than the initial amount that went towards the purchase.

I found out today that is not just me either. A friend of mine who lives a couple towns over got the same letter.

Do you know if this is a nationwide phenomenon, or is it specific only to areas that went boom-to-bust in the past few years? Or possibly only the Chicago suburbs? I thought this bailout was supposed to keep the credit flowing, not stop up existing credit that wasn’t even in trouble in the first place.

Eric

Have other Countrywide mortgage holders experienced the same thing? Below is a section of the letter Eric recieved. Countrywide calls this a temporary suspension based on an Automated Valuation Method (AVM) that looks at historical data and property value projections, and they say you can contact them if you think your home has a higher value than they do. However, their definition of temporary is fairly loose, considering all Eric knows is his HELOC is frozen indefinitely, perhaps for good.




(Photo: Kyle May)