Lenders are now so concerned about declining market values that they are re-evaluating current loans and home equity loans.  Read the fine print!

A woman walks into her bank branch recently screaming that her HELOC line was cutoff! After calming her down, the bank manager explained.  When she took out her HELOC 2 years ago, her house was appraised at 900,000.  She had a first mortgage with Chase and took out a HELOC for 450,000 with my bank. Her house is now worth $650,000. So, she is what we call lop-sided. She owes more than the house is worth.

Getting scared of the inflation, price of gas, raising costs of food and the declining value of your home?  So, are the banks and this is what they are doing…..

The process goes like this: 

• the bank researches to see if your home is in a declining market value area (they have ways)

• they look at the value of your home as stated on the application for the HELOC

• they add the first mortgage balance and the amount outstanding on your HELOC

• if it is higher than 80-90% of the listed value on your loan application, they FREEZE the line

• they do a drive-by appraisal to see what they think the current value is

• if the combined loan to value is hitting the red zone, the cut you off

Here are the facts:

It is true that the value of real estate is declining everywhere.  People have less money and higher expenses.  People have gleefully been tapping into the value of their home to buy fun stuff, but now have to use the HELOC money to pay bills and buy food.  In light if the fact that you might go belly up, the banks do not want you to get in deeper.  So, they cut you off.  It makes sense and is probably good in the long run. 

If you think you owe more than your house is worth and need the money available on your line of credit.  Check it out yourself.  If you think you need the money in near future, perhaps you should write yourself a check and put the money in the bank.  Your bank might be cutting you off soon! Really, read the fine print.

– Dale Siegel