Home Equity Lines of Credit from major retail banks have been frozen.  Including Bank of America, J.P. Morgan Chase, Citibank, SunTrust, USAA, Wachovia, Washington Mutual and Wells Fargo, many major banks have frozen lines of credit.

I have heard from borrowers who have had National City, Harris Bank, and TCF lines restricted in some capacity.

Q: Can they do this?

A:  Yes, as their spokespeople say in the articles, it is their right, as disclosed in HELOC contracts, to reduce or suspend a borrower's line of credit if home values fall significantly or if the ability to repay the loan is in jeopardy.

Q:  Is it personal?

A:  In part, yes.  Information about you and your home will be used to decide which loans will be frozen.  These are based on credit supplements and horribly inaccurate tools called AVMs.  These automated valuation models are incredibly inexpensive, thus, attractive to big banks.

Q:  Does this mean that if I have good credit and strong equity I have nothing to worry about?

A:  Not necessarily.  While it is personal, it is also a numbers game.  In order to minimize some exposure, banks are freezing loans that you would not expect to be frozen.

Q:  Will a freeze impact my credit score?

A:  According to Fair Isaac, no.  They attempt to exclude HELOCs from FICO calculation.

Q:  What should I do if I have received a letter from the bank?

A:  Ignore the internet postings and CNN interviews about calling the bank to discuss your options.  Contact your financial advisor regarding your objectives with your second mortgage.  When you know what you need, we're more than glad to discuss if a new loan at a different bank, same bank, or simple renegotiation is your best option.

A:  Reassess your financial plan pre-emptively.  The purpose of a Home Equity Line of Credit may be for cash reserves or security, but it also may be for home improvements that are in process or about to begin.  If you have been depositing savings into your HELOC, it may be time to insure that you have adequate reserves if it was frozen today.

As always, if you have any questions about your specific needs, give us a call, email or chat live.