How to prevent and/or deal with a frozen or lowered HELOC

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For those who do not know what this means, see this article: Lenders cut off the home-equity tap and see this thread: Can they lower my HELOC ?

We have been hearing about his for a while now, and I think we, as FWF, should be able to come up with two things

1 - Decreasing the possibility that your HELOC is frozen
and at the same time
2 - Preparing for the possibility that #1 might fail, and your HELOC will actually be frozen.

So, my quick thoughts:

1 - Decreasing the possibility that your HELOC is frozen:
*I would think that not using 100% of your HELOC is a good start. What is a good ratio? For A0Rs, a common one is 89%.
*Don't be late on payments (goes without saying)
*Probably also want to watch your credit card ratios. If you are in the middle of an A0R, this might be cause for concern.
*Move credit card balances to business cards, since they don't show up on the credit report.

2 - Preparing for the possibility that #1 might fail, and your HELOC will actually be frozen.
* 1st step: Stop paying extra on any principal. You might not be able to get the money back, and there is no point in paying it down right now.
* Tap your HELOC to 100% beforehand and find the best place to park it. You will lose some money on the interest expense, but this might be a better scenario than losing the ability to take cash out when you need it. This strategy might actually encourage a lender to freeze your HELOC, but since you have your money already, that doesn't matter as much.
* Find other lenders who are less likely to freeze a HELOC. Do you think that a credit union would be less likely? My gut reaction is yes, but I don't know why.

Member Summary
Most Recent Posts
WaMu HELOC A/A received, dated 2/20/09 (approx 23 months since account opening)
* what was the adverse action? no longer ... (more)

jakeru (Feb. 26, 2009 @ 10:25p) |

Just got the dreaded call today from my local bank. I guess I should be thankful I went with a small bank versus one of... (more)

araknis (Apr. 25, 2009 @ 12:20a) |

Thought I'd post here about my issue with WaMu Chase. We got our letter about two weeks ago now. Here are the details:

* ... (more)

mwalsh5757 (May. 10, 2009 @ 2:33p) |

Please list any cases of HELOC "adverse action" (or any other unexpected or unusual actions taken by a HELOC issuer) organized in this QuickSummary by lender name.

Suggested details to include:
* what was the adverse action (IE: credit line reduction, line access terminated, etc)
* if known, what triggered the adverse action (IE: appraisal such as county tax appraisal, or private or unspecified appraisal source, or other negative information found on credit report, etc)
* any other info relating to the Heloc, such as:
1. what combined loan to value % (CLTV) was the HELOC opened with
2. was the property investment property or primary residence, etc
3. what state was the property located in
4. how large was the credit line when opened
5. what did the credit line get reduced to (if the lender kept it open)
6. how much of the line was being used at time of adverse action
7. any other pertinent information (IE: were there any late payments on the heloc, delinquency on primary mortgage payments, etc)


------------------------------------
Lender Wall of Shame
According to FWF members, the following banks have frozen/lowered/threated closure on HELOCs:

CitiBank
WAMU
Flagstar
Chase
HSBC (no definitive proof yet, but according to ccie7xxx it is in the works.)
Countrywide
BofA
USAA
GMAC Mortgage
First American Bank
GreenPoint Mortgage (Capital One)
-------------------------------------
other related threads:

Getting the best home equity rate
Staff Summary
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This is a typical msnmoney article with lots of bark, no bite. Most of the examples in the article are of people who are over-extended or poorly managing their finances. Typical scenario:

Many borrowers with frozen lines of credit have few options because they now owe more on their homes than the homes are worth...

Umm, they are called home EQUITY lines of credit for a reason. Anyone with a HELOC that was over 80% LTV at the time the loan was made is probably at risk as well as anyone defaulting on any terms of the loan, including making late payments. Other than that, I wouldn't worry much about it.

dcwilbur said: Anyone with a HELOC that was over 80% LTV at the time the loan was made is probably at risk as well as anyone defaulting on any terms of the loan, including making late payments. Other than that, I wouldn't worry much about it.
Seeing as my CLTV is 95% - I am a little worried. I don't think it is fair to dismiss this issue outright, since FWF member have been known to push the limits and get away with as much as possible. I don't consider myself risky, but a lender might view it as otherwise.

I was going to do a mini-A0R to pay off the HELOC for a year, but I am concerned that it might get frozen at some point and I will not be able to pay the credit cards back. Granted, I would always be able to apply with another lender, but still....

therivler1 said: dcwilbur said: Anyone with a HELOC that was over 80% LTV at the time the loan was made is probably at risk as well as anyone defaulting on any terms of the loan, including making late payments. Other than that, I wouldn't worry much about it.
Seeing as my CLTV is 95% - I am a little worried. I don't think it is fair to dismiss this issue outright, since FWF member have been known to push the limits and get away with as much as possible. I don't consider myself risky, but a lender might view it as otherwise.

I was going to do a mini-A0R to pay off the HELOC for a year, but I am concerned that it might get frozen at some point and I will not be able to pay the credit cards back. Granted, I would always be able to apply with another lender, but still....


I would not risk it,.

I am not the only one who has > 80% CLTV on their property. And, I do think that people with certain profiles ( > 80% CLTV being one of them), have reasonable cause to at least think about the situation.

ALso, if you own property in a rapidly depreciating area, you might have taken out your HELOC with 75% LTV, but property values dropped 10%, so that you are now around 83% CLTV.

I didn't really want this thread to be about my specific situation - I wanted to discuss it more generally.

So, to get back on track, what can someone do when they are concerned about their lender freezing their HELOC?

I would check to see how long the HELOC it is in the "draw" period.

For my Wa Mu HELOC, the agreement states the lender has the right to, at the end of the draw period, review your credit and decide if they want to extend the draw period further, or to let the loan change into an "amortized / payback" mode.

If you had a draw period soon to be expiring, I would say that would be pretty good cause for concern for the ability to draw funds to end (if your credit score is not looking so hot at the time they perform your credit review, etc.)

Also I'd think if you were under 100% CLTV based on what you (or the lender) might think the current appraisal would come out to, that would be a situation to be concerned about.

Some people actually got "negative amortization" primary mortgages you know! (Option ARMs they call them.) Such mortgages allow the borrower to make a payment that is below what would be "interest only", the the principal amount actually grows. If you had such a primary mortgage and have been allowing its principle to grow above where it started, I would think allowing principle to grow > 100% of where it started would cause concern with a 2nd lein holder.

therivler1 said: So, to get back on track, what can someone do when they are concerned about their lender freezing their HELOC?Stay below the radar. Make payments on time, don't make any customer service inquiries about the loan or any other accounts (loans, credit cards, OR deposit accounts) at the same bank, make sure your taxes and insurance are current, don't try to refinance or subordinate existing loans or any other restructuring. You want to avoid having someone pull up your loan file and seeing anything that warrants a second look.

The one element you won't be able to control is whether the bank is running updated valuation models on the underlying properties. But if you eliminate all the other triggers, the chance of a review would be much less.

Other ideas:

1. Have a large balance deposit account (checking, savings, or CD) with the bank that issued your HELOC.

2. Refrain from taking any unsecured loans (credit cards or personal loans) from the same bank that issued your HELOC.

therivler1 said: Seeing as my CLTV is 95% - I am a little worried. I'd be more concerned about your existing balances to value ratio. If your LTV is 70% plus a unutilized HELOC for an additional 25% of the value, you would be at much less risk than if you had actual balances that total 95%. As long as you dont have access to more than 100%, and you arent carrying actual balances that approach 100%, you wont draw any extra attention.

Its like with credit cards - lenders dont care about you having access to high limits until you start actually using them.

Great topic. I am in this same situation. I've done an AOR to payoff my HELOC, and am worried that the lenders might reduce my HELOC, thus leaving me with a balance on my CC's at the end of the AOR. I bet there might be a few out there that have used AOR's to reduce HELOC's.

I am using option #2. I am going to tap my HELOC at 95%, and park that money into a savings account, to pay the CC at the end of the AOR. I don't make as much interest, but at least I won't have the risk.

Ditto.

I'm in the same boat. I did a small AOR to pay Down my HELOC. I wanted to leave $1000 as balance and repeat the cycle until I can actually pay off the HELCO without credit card debt. This does two things:

1. Less money going to the bank.
2. More tax going to the government: interest on the HELCO is 100% tax deductible in my case.

The problem is there aren't too many credit cards with generous offers of 0% BT with no or little BT fees. Also, if they indeed freeze my HELOC, then i'm screwed(scramble for another AOR).

I figured, the difference in interest from HELOC to an online savings acct. is about 6.5% - 4.1%. I'll be pocketing the difference(approximately: you have to make minimum payments to cc) since the interest you earn is taxable income anyhow.

As far as preventing the freeze on HELOC, the banks are going to do what they're going to do. I recently read an article that it's hard to get approval for CCS. I'm 2 for 2. It's kinda funny. I finally thought that I could beat the system when I thought of doing the AOR to reduce my interest payments. Then, I read the article on how banks are freezing the HELOC. The little guy can't catch a break. I wonder, what's next?

This whole subprime mess is spilling into all facets our lives. I also read today that some of our nation's best colleges are giving free tuition to students from small income families. Why didn't they do that years ago? Not that I went to those schools. Well, this is the only thing that's NOT an adverse effect, I suppose.

I found the Consumer's Guide to Home Equity Loans useful, though I don't know that I'll be seeking another HELOC.


Something interesting regarding my Wa Mu Heloc. The HELOC access Visa card that was issued with my Heloc had a very short, 1 year expiration. Wa Mu just sent me a replacement, good for 2 years this time they did switch it to Mastercard (which they informed me about previously to sending it.) I thought that was interesting that the card had such a short (1 year) expiration. It makes me think that perhaps Wa Mu performs a "soft", account review type inquiry at the one year mark. I'll check out my next batch of "full" credit reports (showing the soft inquiries) for this and get back if I see any account review inquiry from them.

Also, the local news recently featured a homebuilder/borrower who got his Heloc credit line slashed. The issuer of the Heloc was Indymac bank. The borrower it seemed he was using the Heloc for financing building a home on another property it seemed (or something like that.) He was able to get his Heloc credit line restored after disputing it with Indymac (there was some new appraisal involved, he might have had to pony up for it, the news did a horrible job clarifying these important details - confusing home equity loan with heloc, etc, you know what I mean.) But the interview clearly pictured the guy's Heloc statement, and the name of the bank of it was Indymac.

jakeru said: Other ideas:

1. Have a large balance deposit account (checking, savings, or CD) with the bank that issued your HELOC.

2. Refrain from taking any unsecured loans (credit cards or personal loans) from the same bank that issued your HELOC.



I TOTALLY agree with number 1 but regarding number 2 I wonder if existing relationships (i.e. credit cards) used Responsibly (can't stress this enough) might make you a more valuable client in your HELOC lender's eyes.

I would also add that keeping credit scores high and paying down principal on your 1st mortgage are reassuring acts that will probably make your Lender more comfortable.




IOW-- If you love your Heloc and don't want to mess with it I wouldn't try any fancy AOR tricks right now


You can't do anything about declining values in your neighborhood but you can help keep yourself a desirable customer.

Chase just locked my HELOC due to house valuation decline, even though the value of my house hasn't gone down (in a relatively isolated from market conditions area). They give an option to have the house appraised (at your cost) if their valuation (done by a computer, based on who knows what inputs) is invalid in your opinion

Is it worth it? I had $12k parked in my HELOC that I would have rather had out and liquid, but didn't read this article fast enough apparently.

juliox

oh crap!

my bank is chase. i'm in the ny/nj metro area. where are you from juliox? i've recently paid down my heloc. i even asked my banker if there's any chance for freezing my heloc. she said, 'no'. my draw period is 10 years and i bought the house in 2006. i'm kinda sweating here... we'll see what they do. that'd be the last straw against chase. i have so many accounts with them. i'd just start moving my business elsewhere, whenever i'm able to... wish me luck!

jqsmooth said: oh crap!

my bank is chase. i'm in the ny/nj metro area. where are you from juliox? i've recently paid down my heloc. i even asked my banker if there's any chance for freezing my heloc. she said, 'no'. my draw period is 10 years and i bought the house in 2006. i'm kinda sweating here... we'll see what they do. that'd be the last straw against chase. i have so many accounts with them. i'd just start moving my business elsewhere, whenever i'm able to... wish me luck!


Your banker lied to you. There is NO WAY for him to know if it will happen or not

I can add another data point for Citi. Just had my HELOC reduced from $73k down to $10k. I did an AOR to reduce my average daily balance now I'm stuck. All my 0% rates will expire in about 2 months. I called up all my other cards and all my wife's cards and will be able to transfer everything to extend the AOR for another year. I don't have a problem making the payments right now, but it was a little un-nerving to lose that cushion. I really can't stand Citi and have no intention of doing any business with them expect for AOR business. I have not had a pleasant experience in dealing with Citi.

Just received my letter from Citi reducing my HELOC from $140,000 to $24,500, again supposedly based on declining home values. They said that I can pay $575 for an actual appraisal to appeal.

I busted out my Wa Mu HELOC contract agreement last weekend and read it for scenarios where Wa Mu could cut the size of the credit limit of "access line".

Found an interesting provision in the contract, relevant to this thread discussion: "the credit line may be reduced if there is large drop in equity compared to when the heloc was initially granted, specifically any 50% or greater drop in equity"

I am paraphrasing that a bit, but basically the way I understand this provision is, if I initially took out a 90% CLTV Wa Mu HELOC, but later it changed to 95%, Wa Mu could take the action of reducing the size of the home equity access line. Assuming no principle repayment, this scenario would require a 5% property valuation drop.

Or alternately, if one originally opened a 80% CLTV Wa Mu HELOC, and it later changed to 90% CLTV, Wa Mu could cut the size of the access line. Assuming no principle repayment, this scenario requires a 10% property valuation drop.

I don't know if Wa Mu does 95% CLTV Helocs, but if they did, it might take no more than a 2.5% property valuation drop (raising CLTV to 97.5%) for Wa Mu to be able to be able to "legally, and as per mutually agreed contract" reduce the access line size.

Definitely something to be aware of.

PS - property tax appraisals (for determining amount of property taxes owed) seems like a logical screening method a lender could use for determinig which HELOC borrowers could be targeted for a line cut. The property tax figure is publically disclosed (easy for lender to get a hold of) and is also property-owner "acknowledged" or tacitly "approved" assuming the property owner gets a chance to challenge the appraisal value. (Usually, property owners who challenge such appraisals, argue the valuation should be for less in order to pay less taxes.)

Another interesting tidbit of Wa Mu HELOC contract language - it contains a provision similar to "universal default" clause of some credit card issuers. Basically, the provision allowed Wa Mu to deny a borrower access to their HELOC, if the borrower had a "large" drop in FICO score.

I just received this letter from Flagstar Bank.

Dear Borrower,

According to records it has been at least several months since you exercised your right to draw against your Home Equity Line of Credit. Because of this inactivity, we would like to give you the opportunity to terminate your HELOC earlier than the agreement permits. Doing so will allow us to report "account paid" to the credit reporting agencies, lowering the amount of outstanding indebtedness that is reported about you.

If we do not hear from you within the next 15 days, we will proceed to terminate your HELOC. If you would prefer that we not terminate the agreement, please remit a written request to:


It looks like they are getting pretty aggressive about terminating these things.

me232- very interesting, thanks for the tidbit!

All: It would be interesting to see a list of HELOC "adverse action" (or any unusual actions taken by issuers) organized in the QuickSummary by lender name.

It would be useful if you could include pertinent information relating to the "adverse action", for example:
* what was the adverse action (IE: credit line reduction, line access terminated, etc)

* what triggered the adverse action (IE: appraisal such as county tax appraisal, or private or unspecified appraisal source, or other negative information found on credit report, etc)

* some info about the Heloc, such as:
1. what combined loan to value % (CLTV) was it opened with
2. was the property investment property or primary residence, etc
3. what state was the property located in
4. how large was the credit line when opened
5. what did the credit line get reduced to (if the lender kept it open)
6. how much of the line was being used at time of adverse action
7. any other pertinent information (IE: were there any late payments on the heloc, delinquincy on primary mortgage payments, etc)

This list could prove very useful for alerting other FWF memebers with Helocs to know if they might be able help them rest easy, or to be on the lookout for possibly getting similar adverse action themselves if they are in a similar situation

Edit: added this suggestion into the quicksummary

From the FAQ- The Consolidated HELOC Home Equity Line of Credit thread, and list of BEST HELOC DEALS

DocTodd said: i know this doesnt qualify as a deal, but WAMU just lowered my line of credit by ALOT with no notice except a letter in the mail after the fact. The housing bubble/mortgage crisis/economy is the reason according to them and a banker friend of mine. So if you were planning on using that HELOC money, you might want to do it now before they lower your line unexpectedly. It really puts a dent in your day when you were expecting to loan yourself money and then find out the money you were counting on isnt there anymore.

I added a lender wall of shame to the QS:

Lender Wall of Shame
According to FWF members, the following banks have frozen/lowered/threated closure on HELOCs:

WAMU
Flagstar
Citi
Chase

funny....i posted my experience in the HELOC thread and just read this. Thx for someone linking it. I am at fault for not reading the finance forum more often cuz i would have known that WAMU was going to do that. I lost out big time....they lowered my HELOC by about 170K. I hope you guys can learn from my experience.

T

regarding the points asked a few posts above.....

it is a primary residence(well it was when i opened it....i dont know how they would know otherwise)......my credit is fine.....no late payments or anything...i havent applied for anything new or out of the ordinary.....the CSR said it was due to decreased appraised value....from 620K previously to 450K now. Im in south florida which has been hit particularly hard with dropping property values.

Good luck.

T

DocTodd, sounds like I have a similar situation, a former primary residence that I still own & have a primary & HELOC on. I definitely met the terms for both as "primary residence", but still tried to keep from alarming them about the change in that. Online statements only, and never notified them of my change of address. They both figured it out somehow, and very quickly too. I think the primary lender found out via property insurance, which I also changed at that time. They don't escrow & pay for the insurance, but still are registered with the insurer to make sure I maintain coverage. I still have no idea how the HELOC lender figured it out. But, no adverse action from either and it's been more than 6 months now.

Frankly, your case sounds quite reasonable and foreseeable. Do you think it's roughly accurate that the property is only worth about $450k now? My HELOC (and earlier ones) are definitely built to stay within a total LTV limit. If a region is believed to have suffered a big general drop in values, they'd be reckless not to reappraise and change HELOC lines they have there.

Wow. Wish I had read this thread. Just got a letter in the mail from WAMU that my HELOC was reduced last week from $120k to $78k. (about $4k more than I owe on it)

Not cool. I had actually just been talking about using the HELOC (and its tax write off) to rearrange some debt to help buy a SECOND home. There goes that plan - plus it was nice to have an "instant" $50k cushion in case for some reason I needed the money.

Definitely puts a big dent in my financial agility. In fact, I suspect it just guaranteed that I won't be buying a new house this year. (some remarkable deals out there - was trying to avoid having to sell mine at a discount to upgrade, since I'd be happy to own this house at the price I paid long term)

This blogger Citibank freezes home equity lines of credit nationwide


and this
Citibank Freezes Home Equity Lines of Credit


wrote interesting updates


They also included a copy of the letter somebody received:

Citibank Freeze Letter



I was googling for info when I ran across them this morning.

At some point does this turn into a PR nightmare for Banks or do they just not care anymore?

I guess we know the answer.

therivler1 said: I added a lender wall of shame to the QS:

Lender Wall of Shame
According to FWF members, the following banks have frozen/lowered/threated closure on HELOCs:

WAMU
Flagstar
Citi
Chase


Why is this a wall of shame? No one owes anyone credit. If your bank doesn't feel like lending you money, find another one (unless you have no equity anyway).

HSBC started to suspend HELOC at least in my NYC area. CS mentioned that letters use deterogated home prices and/or credit reports as reasons. 6+months draw suspention before you may ask for review. CS is not authorized to reveal more info at the moment.

Three weeks ago I took most of the money out of my untapped heloc to preserve it. Two days ago I got the heloc suspension letter from Citi. Thanks fatwallet for the heads up.

My helcoc was untapped and for emergencies only, and it was a long process to acquire because the guys over in India kept asking for the same things over and over, and not to mention they were very unorganized.

I'll never use citibank again for helocs or real estate loans.

Sparhawk24 said: therivler1 said: I added a lender wall of shame to the QS:

Lender Wall of Shame
According to FWF members, the following banks have frozen/lowered/threated closure on HELOCs:

WAMU
Flagstar
Citi
Chase


Why is this a wall of shame? No one owes anyone credit. If your bank doesn't feel like lending you money, find another one (unless you have no equity anyway).

Because Wall of Shame sounds better than "Wall of lenders who have frozen/lowered/threated closure on HELOCs"

But, in all seriousness, I don't think that the lenders are egregious in their actions. They are acting in their financial best interests. However, I do think we need to keep track of which lenders are more aggressive in their actions than others.

So far, it seems like Citibank has been leading the charge.

According to this blog, Countrywide froze her HELOC, though it was an investment property. Although in the comments, it sounds like people with the HELOC on their primary residence were getting frozen also.

This commenter said that USAA froze her line.

This commenter said that BofA froze their line.

This WashingtonPost article (subscription may be required) singles out Countrywide, USAA and BofA.

If you think you'll need your HELOC money, better grab it fast

A run on the HELOC'S?

"Other homeowners who haven't had their lines of credit cut yet may borrow the maximum amount quickly before it disappears, he added.

"It is likely that many of the most vulnerable borrowers are likely to take this action, potentially creating 'bad growth' in home equity portfolios," Cannon wrote. "

Because banks can pull undrawn home equity lines of credit relatively easily, regulators don't require lenders to set aside much capital to back such exposures, Cannon said on Monday.

"So it's interesting to see them being so active in reducing these lines," he added. "It could be driven by concerns about their own liquidity or future credit losses or regulatory pressure that has to do with safety or soundness."

Wish I would've come across this post last month

Just got hit on my Chase HELOC... cut the limit by 70%.

Can you offer some details, ajf3? Where is the property - do you agree that its value has slipped past the LTV ratio the HELOC opened with? Did Chase offer any details like that, or just the change in terms?

I have a Chase HELOC with both a moderate balance and a good chunk of available credit. But the property's value seems to be fairly steady, and our primary mortgage payments are reducing LTV about 3% per year. I'm hoping our HELOC line is safe, but not worried enough to draw more funds from it to be sure.

It seems logical to me that HELOC reductions should be predictable with a realistic understanding of the home's value, but there's not much assurance that the lenders will start behaving logically or that their home valuations are objectively realistic either.

Skipping 55 Messages...
Thought I'd post here about my issue with WaMu Chase. We got our letter about two weeks ago now. Here are the details:

* what was the adverse action (IE: credit line reduction, line access terminated, etc)

Credit line reduced

* if known, what triggered the adverse action (IE: appraisal such as county tax appraisal, or private or unspecified appraisal source, or other negative information found on credit report, etc)

According to the bank, change in value based on underwriter's appraisal.

* any other info relating to the Heloc, such as:
1. what combined loan to value % (CLTV) was the HELOC opened with


83%

2. was the property investment property or primary residence, etc

Primary residence

3. what state was the property located in

CA

4. how large was the credit line when opened

$100,000

5. what did the credit line get reduced to (if the lender kept it open)

$16,300

6. how much of the line was being used at time of adverse action

$15,400

7. any other pertinent information (IE: were there any late payments on the heloc, delinquency on primary mortgage payments, etc)

Nothing. No late payments on anything. No change in financial circumstances (unless you count for the better). No outstanding debt beyond the 1st and HELOC balances. Tons of equity in the property (actually more than at origination). Not even significant changes in value or equity to the negative (at least if you take my figures over the bank's). See all the gory details on my blog.



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