When HEL Freezes Over -- Who's out in the cold with the HELOC freeze?
Banks spent the last decade trying to persuade everyone who came through their doors to take out a home equity loan (HEL) or a line of credit (LOC). Now they've changed their minds. Sort of.
Financial institutions are still marketing these products, but they've also started freezing accounts of current customers.
Countrywide suspended 122,000 accounts.
USAA pulled or reduced 15,000.
Chase, National City, Washington Mutual and Suntrust have mailed out HELOC Freezes
And the pending freezes list includes Bank of America and CitiGroup.
I haven't read of any lenders calling the loans due. What they are doing is tightening their lending practices. Loans that were already approved and in place, with the home as collateral, are riskier now that home values have fallen almost everywhere.
Who´s in trouble? Anyone who has an outstanding HELOC, or is trying to get one, whose outstanding mortgage loans would then exceed 80% of their equity. Let´s look at an example. The Browns bought a $300,000 home. Between their down payment and the monthly payments they´ve made, their loan is now only $200,000. They took out a $50,000 Home Equity Line of Credit last year to provide some major maintenance to the structure.
and
Banks Closing Doors to Home Equity Loans
When bankers use such catchphrases as "liquidity crisis" and "tightened lending standards," what they really mean is that it's tougher to get a loan. That's certainly true for home-equity lending. Until recently, borrowing against soaring home values was almost as easy as getting a new credit card. Now, prospective borrowers find it more difficult to meet lenders' increasingly stringent requirements.
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