More and more banks are trying to think of ways to stem mortgage losses. One of their methods is to freeze or cancel your home equity line of credit. Tens of thousands of Americans are getting a call from their bank telling them that their home equity line of credit is gone. This is happening to everyone, even people who have no trouble paying off the loan, or even those who have never tapped that line of financial credit.
As banks are dealing with heavy losses from their sub-prime mortgages and high risk loans, the viable home equity loans are also taking a hit. Banks are pulling the money before this equity line becomes a problem too. Essentially, banks are trying to save their money from being lost to homes that fall into foreclosure. When a home owner falls into foreclosure, it not only hurts them, but the bank they borrowed from too. If banks have too many foreclosures written in the books, they will likely be loosing money and will go out of business. Which is one of the main reason you hear about so many banks, being taken over or filing for bankrupty today.
Why did banks specifically choose to freeze or cancel the home equity line of credit? Well, there are many homeowners who took out lines of credit on their house when the real estate market was high. Now these people need to sell their house, but are having problems finding home buyers. The first thing homeowners’ do is to look for money in their home equity line of credit. With decreased property values, the homeowners may have the ability to borrow more than the home is worth. This causes them to be “upside-down” in their house.
Delinquencies on home equity line of credits increase every year. For this reason banks have responded by pulling this credit line. It was mostly done in high foreclosure cities like; Las Vegas, Stockton California, Boise Idaho, Miami Florida, Houston Texas, New Jersey and Orlando Florida.
If you are worried about your home equity line of credit being frozen or taking away, there are some sure tell signs that you can watch for. Like if you live in a housing area where prices have fallen by 10 percent or more. Also if you bought your home with little money down in the last few years, your Equity credit could be affected.
Banks were able to lend as much as 100 percent of the home value in previous years, while today, most homeowners cannot borrow more than 90 percent. In some areas, where the market was hit the worst, borrowers are only allowed to borrow 60% of the homes value. In order to verify your loan cap, contact your bank to see if it is at risk. If you miss a payment or have a change in your credit score, your home equity line of credit might be flagged for a potential risk and get the freeze.
If you are using your home equity line of credit to finish a renovation, you can potentially pull out a lump sum in order to finish the project. Only take out what you need; it is not worth getting in financial troubles, just to do some renovations on you home.
If your home equity line of credit has already been frozen, you can try and fight it out with your financial institutions. Look to see why the line was suspended in the first place and ask them what you can do to appeal the decision. Many banks just automate the process to freezing the loans, if you can prove a solid case of why you should have your home equity line of credit, the bank may unfreeze it.
Finally if you are using your home equity line of credit to pay your mortgage while you sell your house, pull that money out quick. The banks are implementing this new freeze standard nation wide.
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