Money Castle - Home Equity

Home Equity

Home Equity line of Credit frozen!

Your make probably send you a letter, telling you limit on your home equity line of credit or HELOC has been reduced. This is something new on Mortgage market but unfortunately this is true market is in recession and we should be aware of recession. Creditor send this letter because they want to notify borrower of mortgage crisis and that they can no longer assistance them in borrowing money because they simple don't have enough money to lend. Many people are frustrated because of this move but banks don't regulate home equity line of credit. Most of the time clients borrow money against their home to payoff first home mortgage as well payoff credit card or any other financial obligation debt. Companies that don't give any new credit to customers suffer financially because they can't charge customer interest rates and they don't earn money. One of the example I want to share is with my co-worker Joe Snow, he have condominium in Texas, plus a home equity line of credit with a balance of $15,000. This summer, Bank of America froze the HELOC. Home Equity line of credit had been $100,000. Now, Bank of America wrote in a litter, Joe Snow you are not allowed to borrow any more against your home's equity, and you would have to pay off the balance over time, so the effect is that his home equity line of credit was reduced from $100,000 to $15,000 that he owned what happen with $85,000 probably Bank of America will never be able to recue back from financial suffer. This is very frustrating moment for HELOC customer as they can't borrow money against their home they need to do refinancing so other company may allow them to take HELOC against their home. Many lenders decide to cut HELOC this year in areas where property values are falling. In my opinion from lenders point of view it is prudent and sensible to prevent homeowners from borrowing against equity that has evaporated and not longer available to valuable clients.