Most major lenders are freezing withdrawals from Home Equity Lines of Credit (HELOCs) – and I don’t want you to be caught off guard by this development.  If you were planning on using your HELOC for spring home improvements or college tuition, chances are the money has been – or will be – shut off.

You should be aware that the lender retains the right to suspend or reduce the line of credit available if your property value falls below the appraised value used to originate the loan.  Lenders are actively assessing properties and then suspending access for account holders who have seen a downward slide in their home value.  Realtors who do Broker Price Opinions (BPOs) are reporting a dramatic increase in BPO requests from lenders for this reason.

These are excerpts from Countrywide ... sent to borrowers before Countrywide FROZE Helocs:

"Important message about your loan: At Countrywide Home Loans we are committed to helping customers sustain homeownership. As part of the commitment, and in keeping with its sound risk-management and responsible lending practices, Countrywide Home Loans is reviewing and analyzing home equity lines of credit in its servicing portfolio.

As you know, home values in many areas of the country have declined. We believe that the decline in the value of your property, from its original appraised value at the time your loan was made is significant.  In accordance with the terms of your Home Equity Credit Line Agreement and Disclosure Statement (Agreement), we have elected to suspend further draws against your account as of the Effective Date above.’  On Friday, the Los Angeles Times reported that Countrywide notified many homeowners they’ve lost their right to borrow against their credit lines:

‘ Tens of thousands of homeowners with home equity lines of credit are getting a rude surprise: They’ve been told by their lender that they can no longer take money out on their credit lines because sinking home prices have left them with little or no equity.

Among the lenders taking such action is Countrywide Financial Corp., which sent 122,000 letters to customers last week telling them they could no longer borrow against their credit lines.  In some cases, according to the company, the borrowers are now “upside down” — the total debt on the home exceeds the market value of the property.

Calabasas-based Countrywide, the nation’s largest mortgage lender, says it uses computer modeling that factors in changes in home prices to determine which customers will have their money tap shut off. ’

Will we see a Chase HELOC freeze or a Bank of America HELOC Freeze?  What will that do to the economy?

If there was any question that consumers were feeling the pinch before…just wait until they are told that their homes are worth LESS than what they owe.  Or in the words of Countrywide…"Significantly Less”.  Think that will have an effect on the economy?  Do you think this will make consumers feel more confident about housing?

 If you have a HELOC and you were considering using it to fund something important that your home or family needs, you might want to consider use it now before you receive such a letter.

Tags: HELOC, HELOC Freeze, upside down, Broker Price Opinion, BPO, credit line, appraisal, no equity, market value, property value, credit line borrowing