Declining Home Values Lead to Frozen Home Equity Lines of Credit
Today’s article is way off topic for me, but covers a subject matter that is potentially significant to a great deal of homeowners.
Recent housing data indicates that each day from July through September, more than 2,700 Americans lost their homes due to foreclosure. That number is up from 1,200 a day a year ago and may continue to rise. An additional 4 million homeowners with a mortgage were at least one month behind at the end of June. Meanwhile, housing values continue to deteriorate at an alarming rate.
The far-reaching impact of the housing crisis is now extending to homeowners that have a Home Equity Line of Credit (HELOC) with unused credit available, but may not have access to that credit for long. A few months back, Countrywide Financial led the way by suspending 122,000 borrowers from accessing their home equity lines, and since then Washington Mutual (WAMU), Bank of America, IndyMacBank and Wells Fargo have frozen hundred’s of thousands of HELOCs, preventing home owners access to money they thought was available.
Many People are Likely Unaware that Home Equity Lines can be Frozen
Banks usually have the right to rescind credit lines at any time under the terms of the contracts used with borrowers. As home prices have tumbled, already battered banks are trying to protect themselves from exposure to additional losses. The biggest home lenders are revisiting how much their borrowers owe in relation to declining housing values, as well as examining any deterioration in their customers’ credit scores or payment habits.
If you have a line of credit against your property, and you think you may need or want to tap into that equity any time soon, you might want to take it out now. This assures you access to it if needed – an emergency fund. Borrowers are subject to interest payments, but they are relatively minor for the degree of financial security provided in case of a real emergency. Lenders can’t demand repayment of money already borrowed, but they can keep you from accessing any additional funds from your HELOC. Plan accordingly.
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