Banks may FREEZE Helocs
As many of you know the housing market is experiencing severe declines in property values all across the country (especially in Florida) which has forced lenders to tighten their lending guidelines. Some banks, such as Countrywide, have gone so far as to freeze their lines of credit in areas with declining market values.
It has come to our attention that Bank of America is about to do the same. This will NOT be across the board for all lines of credit - far from it. In fact, just 85,000 lines with Bank of America will be frozen starting March 1st. This is a small percentage of the total lines of credits that they have on the books as BOA is the country's largest HELOC provider. That said, if they do this, many other banks like Chase, Wachovia, Chevy Chase, etc. may follow suit. Some lines will be frozen, some will just be reduced in size, and most will remain unaffected. Clients will receive a letter in the mail if their line is affected. You might have an opportunity to get your line unfrozen if you have a full appraisal done and the value of your home comes in higher. Then, of course, you can always switch to another lender that may still extend you a new line of credit. However, these are getting harder to qualify for every day.
The clients that will be affected would more than likely be clients with high loan to value ratios, declining property values, and clients with bad credit or declining credit. This obviously can be detrimental to the banks if clients owe more than the house is worth.
Now, what can you do? You may want to take 2-3 months worth of expenses out of your line of credit and put it into savings just in case your line is frozen. If it's not, you can put the money back into the line.
Or, especially if you have a large HELOC, you may want to do a refi and add the HELOC onto the balance of your current loan. 30 year fixed rates are still low. If you have any questions please give me a call.