Home Equity Lines Taken Away

Now you see them, now you don't. That is what is happening with home equity lines of credit across the United States. You thought you had an equity line. You actually don't.

Shareholders, taxpayers and consumers are to ones who will have to shoulder all the costs for this mess caused by lending institutions and mortgage originators. Lenders are scared to lose money because of their bad judgment in last years so they are stopping borrowers with pristine credit. There is a mass freezing of home equity lines without any explanation to the borrowers or any other consolidating words.

Major lenders like IndyMac, Washington Mutual and the Greenpoint Mortgage Unit sent thousands of letters in which they are saying that the home equity line of credit is frozen for the borrower. The decision is based on declining property values.

Lenders have a right to do this according to the contract they signed with borrowers for home equity loans. They are only protecting themselves from losses.

What is important here and is out of usual politics is that banks are freezing home equity lines of credit for those borrowers whose real estate price is rising. There are no explanations why are they doing this and how did they determined the price of real estate is falling in some areas, when it clearly is not.

This will surely cause another downfall in consumer spending and lead the economy in a bigger hole. The spending rates were as low as they were on 1982. Today they are caused mostly by gas and food prices, but freezing of home equity lines will push them even more down.

Another exasperating point of home equity lines today is that there will be no refunds for fees paid to secure the HELOC. And these fees can be quite big, for a $50,000 loan there is a $1,500 fee. If the line is freezed before the entire amount, then borrower should get part of those $1,500 back. But that is not the case.

Besides that, there are lot of borrowers who have excellent credit score but they also got the letter that their home equity line of credit is being frozen. It seems no one is sure because letters are being sent to everyone, even to those who pay their debts regularly, on time and even don't use their home equity line of credit at all.

Lenders should do reevaluation and make a decision based on that. But instead, they are freezing everyone's home equity line of credit.