HELOCS Frozen? – Episode #93

As the Economy Chills… Can You Avoid a Frozen HELOC?

It’s been happening for months now.  People are trying to get some cash out of their HELOCs, probably because the economy is getting worse. As the twitter nation says…Fail!

It seems banks have decided that houses aren’t worth what they used to be and HELOCs are being suspended. Banks are sending out letters sometimes, but in other cases you find out when you call them and they tell you your HELOC is frozen.

Here’s what they will probably tell you.  Your house has dropped in value by more than 10% in the last few months, or your credit score has declined.  Many people think that the bank has all the power and that you cannot fight them.  Not so fast, you need to read the fine print.  Some contracts require the bank to provide proof as they are engaging in an adverse action.  If they cannot prove that their reasons are sound, they may be forced to reopen your credit line. Many banks may be hoping that consumers don’t challenge their decision to freeze credit lines, but some banks have clear language allowing them to engage in this practice.

Here’s what to do if your credit is frozen:

1. Find out exactly why your credit line was frozen.
2. If its because of a decline in home valuation, then consider getting a Realtor to pull sales statistics for a few mile radius of your house, and if in your favor, provide this to your lender
3. You may want to consider getting an updated appraisal.  While this will cost a few hundred dollars, it may be worth it to prove your case.
4. If it’s because of a credit score decline, you should look over your credit report to make sure its accurate and then work on getting it higher in the near term.
5. Once your credit is in good shape, if your lender won’t unfreeze your credit line, shop around.  You may find another lender willing to lend, even in this market.

If your line hasn’t been frozen, you might want to consider getting a chunk of cash out of it before a potential freeze occurs.  But please, you should only be doing this if you really need the money in the near term.

Similar Posts:

• HELOCS Frozen? – Episode #93
• Loan Modification vs. Loan Modi “fiction” – Episode #94
• Fraud Alerts and Credit Freezes – Lesson #9
• Evidence Credit Scores Are Dropping – Episode #101
• How Should Credit Scores Be Handled When You Are 65+? – Episode #29
• What is a Secured Credit Card? How Can it Help My Credit Score? – Episode #21