Watch Out for the HELOC Freeze
If you have a home equity line of credit (HELOC), even if you haven’t tapped it, it may be in for a freeze. Since the credit market crisis has been underway, banks have been limiting the amount they allow for a HELOC, as well as freezing HELOCs that have already been approved. Bambooclat.com points this out about the worries afflicting banks with regard to second home mortgage loans right now:
The number of homeowners who have been affected have been in the tens of thousands, as more and more banks are trying to stem mortgage losses. As banks are dealing with heavy losses from their subprime mortgages and additional high risk loans, the viable home equity loans are also taking a hit as the bank pulls the money before this equity credit line also becomes a problem.
This is bad news for many people. For most of us, our most valuable asset is our home. In times of trouble, it is common practice to tap into the equity in the home in order to help meet expenses. Unfortunately, right now banks are closing that avenue — especially in places where the housing market has dropped significantly. The worry is that the drop in home values will lead to an immediate negative equity situation. If a homeowner goes into foreclosure in such a situation, it costs the mortgage lender more money in the long run.
Another issue is the aggressive cuts being made by the Federal Reserve. Another rate cut is expected Wednesday. Because a HELOC is usually a variable rate, it is affected by a Fed rate cut more than a first home mortgage loan would be. So banks are not making as much when it comes to interest, either. In the mind of the mortgage lender, the return on the HELOC is not sufficient to offset the risk. Even if you have good credit.
As a result, some with good credit are looking for alternatives. There are companies out there starting to serve a niche market of people with good credit. These folks are being offered unsecured loans at reasonable interest rates in order to provide an alternative to tapping a HELOC that may be frozen.
Tags: HELOC freeze, home equity, home mortgage loan, home equity second mortgage,
second mortgage, HELOC, home equity line of credit
November 8th, 2008 at 5:38 pm
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