Home Equity Lines Of Credit Go Bust!

Decline in Home Values.
One of the direct consequences of the decline is the cancellation by many lenders of the popular HELOC short for Home Equity Lines Of Credit. In many areas where the market value of homes is no longer what it used to be and where borrowers have established HELOCs have received notices similar to the one shown below.

IMPORTANT MESSAGE ABOUT YOUR LOAN.
At XYZ Company, we are committed to helping customers sustain homeownership. As part of this commitment, and in keeping with sound risk-management and responsible lending practices, XYZ Company is reviewing and analyzing HELOCs in its servicing portfolio. As you know, home values in any 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 HELOC agreement and disclosure statement, we have decided to suspend further draws against your account as of the effective date above.

WHAT THIS MEANS TO YOU.
1. You will no longer be able to draw on the line. You will no longer be able to use checks that you may have previously received. You will no longer be able to use the card associated with this account.
2. You will continue to receive a monthly statement which will include current payment information, and you should continue to make payments...
3. If you have automatic deduction for the monthly payment, this service will continue.
4. If you use your line to automatically pay other bills, you should cancel them.
5. You may regain access to your HELOC by notifying us, in writing, with evidence
that your property value and equity have sufficiently increased.

These are some of the realities of the new real estate market. You do not have to be in foreclosure to suffer the consequences of a declining market or miss any of your obligations to lenders.

WHAT YOU CAN DO.
1. You may want to get an appraisal from an independent Appraiser to confirm the facts, this is similar to getting a second medical opinion.
2. You may also want to investigate a refinancing with another lender if the results of step one prove that you have sufficient equity and your current lender refuses to accept your evidence. You could then combine the first mortgage and the HELOC into one loan, preferably a fixed one.
3. in all instances, continue to make your payments on time in order to avoid damaging your credit.

DISCONTINUED (HELOCs).
Major lenders such as JP Morgan Chase have stopped issuing new HELOCs in certain market due the increased risk associated with the decline in property values, and you may be hard pressed to find a lender willing to give you a loan. It does not hurt to try if you must have one.

Contact me by e-mail at: jpalla@panamlending.com with questions or comments.