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

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I got the dreaded frozen HELOC letter today. First Horizon Home Loans cut my 2nd mortgage HELOC's $60k credit limit to my current balance, $49,200. I had done an AOR the past two years to move these balances to 0% cards. At one point my HELOC balance was less than $1000. Thanks to the heads up by FW, I pulled out almost the entire credit limit of the HELOC in March, so I would have sufficient cash to pay off the 0% credit cards when their 0% intro. periods ended.

BTW the home is in Northern Virginia, and its value on the market has declined by more than the entire amount of the HELOC.

My wife and I received our letter from Chase a couple weeks ago informing us that our HELOC had been frozen. We were near the max anyway (we just built a garage and finished our basement) so it really didn't impact us much.

We have an excellent credit rating and have never been late on a payment with Chase. What I find interesting is that every other day since the HELOC was frozen, we receive a Pre-Approved Credit Card application from Chase. It seems like they're happy to loan us money - as long as it's on a revolving credit card account.

I wonder how many people are responding to Chase's "dump and sweep" marketing campaign.

Just curious. Has anyone with a Credit Union HELOC been frozen or had the line of credit lowered?

Edit: My heloc with a CU has not been frozen or lowered as of 7/1/08. And, as an additonal data point, my property's county assessment was actually increased recently. The Credit Union uses the assessment info to "value" the property.

I got my letter today from USAA. They completely froze my line, of which $0 had been withdrawn so far. I am really pissed, because they are citing an 'electronic' assessment and they will not do an appraisal.

I had no plans to withdraw anything, I had set this up as more of an emergency funds source.

I am debating whether I want to apply for a new line at a new bank. Are any banks doing lines with a Combined LTV or 90% or more right now? I noticed that ING Direct now has there max at 75$ Combined LTV.

WhoreNun said: I got my letter today from USAA. They completely froze my line, of which $0 had been withdrawn so far. I am really pissed, because they are citing an 'electronic' assessment and they will not do an appraisal.

I had no plans to withdraw anything, I had set this up as more of an emergency funds source.

I am debating whether I want to apply for a new line at a new bank. Are any banks doing lines with a Combined LTV or 90% or more right now? I noticed that ING Direct now has there max at 75$ Combined LTV.


Sorry to hear about your frozen heloc.

You might be interested in NASA FCU's HELOC. Up to 90% LTV.

WhoreNun said: I got my letter today from USAA. They completely froze my line, of which $0 had been withdrawn so far. I am really pissed, because they are citing an 'electronic' assessment and they will not do an appraisal.

I had no plans to withdraw anything, I had set this up as more of an emergency funds source.

I am debating whether I want to apply for a new line at a new bank. Are any banks doing lines with a Combined LTV or 90% or more right now? I noticed that ING Direct now has there max at 75$ Combined LTV.

USAA has been doing this alot.

I know DCU goes to 90% LTV (Prime -1/4%), I think they might go up to 100%.

WhoreNun said: I got my letter today from USAA. They completely froze my line, of which $0 had been withdrawn so far. I am really pissed, because they are citing an 'electronic' assessment and they will not do an appraisal.

In 12/06 we refi'd the home and opened an HELOC with USAA. PenFed required a full appraisal for the first, USAA did the electronic thingie. The difference was about $68k. I've since decided that PenFed's human had to have done the accurate appraisal, since it means I've lost 68k less on my home's value.

Thanks for the suggestions - I have never heard of DCU or NASACU - I will look into those.

Update - I noticed on DCU's page "Available in all states with the exception of TX and CT." Unfortunately, I am a resident of CT. I wonder why they don't offer their HELOC there?

You know many HELOC's charge an annual fee ranging from 75 bucks clear on up to 250 bucks...then they freeze or lower your credit line after the fact...I would ask for a refund!

ES

You know...some of those HELOC's that are behind one of those neg am loans...you really could not blame the bank for putting the freeze on...

In Europe they can "call" the loan if the security no longer is "good security"...wonder what would happen here if that took place?...but I really do not think it would take place here, as banks do not really want the inventory...well unless they can get the fed to finance it lol...


jim55555 said: BTW the home is in Northern Virginia, and its value on the market has declined by more than the entire amount of the HELOC.

ElectricSavant said: In Europe they can "call" the loan if the security no longer is "good security"...wonder what would happen here if that took place?...but I really do not think it would take place here, as banks do not really want the inventory...well unless they can get the fed to finace it lol...
A standard mortgage in the USA is not callable.

Just found this article on Kiplingers The Home-Equity Door Slams Shut I like at the bottom where it says Kiplinger's said: Harder to get a HELOC. Surveys by HSH Associates show that in some parts of the country, new home loans are now limited to 65% of a home's value. Scott Lugar, head of consumer lending for Internet bank ING Direct, says that in certain communities -- especially in California and Arizona, where home values are "clouded" and difficult to pin down -- the company might choose not to do business at all right now.

Even in places where home prices have remained flat, it's unlikely you can borrow up to 90% or 100% of your home's value, as was common a few years ago. Piggyback loans used to avoid private mortgage insurance have all but disappeared. You'll have to produce full documentation of your means, and you'll need a minimum FICO score of 680 -- possibly more if you're self-employed.

If you think you'll need the money, draw it out right now. In this tight credit market you can't rely on borrowing power to remain fixed.

I got the lowered limit letter from BofA a few months ago on one of the HELOCs. Thought about paying it down but then decided not to just in case the lowered it further after I paid it down. The interest rate on it is no down to 3.99% which is a plus

My $100k Heloc currently is prime -1%. It is now 5.25% because it has already gone down the max of 2% in a year, but will go down to 4% in October. Although I am pretty sure I have near 100k equity in my home, I do live in California and things can go further south in a hurry. I am thinking of taking about $60K out right now while I can. Anybody have an idea where I could keep it liquid and get 4% ? Not trying to make a penny, just want to have it available at a moments notice. I do have a WAMU online savings account at 3.3%, rather not add to interest shortfall if there is a better alternative. I did find a CU rewards checking that pays 5% but 50K limit, thinking of doing that and putting the other 10K in WAMU at 3.3%.

First Republic has a liquid CD paying 3.95% seems to be exactly what you need.

I would take the full line rather than just 60k

SUCKISSTAPLES said: First Republic has a liquid CD paying 3.95% seems to be exactly what you need.

I would take the full line rather than just 60k



Thanks, I will look into Republic Bank. I may take the whole enchilada after all. I suspect if I just take 60K the CU might pull the remaining 40K.

I drew my entire HELOC from USAA about 6 weeks ago when I found out that the house next door sold for 170k less than USAA had valued my home. Now they did overvalue my home by almost 70k with their automated system, but still, ouch. Of course the house next door is more valuable than mine, as are all the homes in the neighborhood except the one that needs to be condemned. USAA still hasn't frozen my HELOC though. I have read of them doing it in at least one case when the account was already maxed, so even though it seems like an exercise in futility I still expect them to do it.

WalStMonky said: I drew my entire HELOC from USAA about 6 weeks ago when I found out that the house next door sold for 170k less than USAA had valued my home. Get it while you can

I must say, it's going to be amusing to watch the masses try this with HELOC's and credit cards, as word leaks out that credit limits are being cut en masse. The news stories will be a hoot.

"First, they give me the credit card. I didn't even want it. They practically forced it on me. Then they keet raising the credit limit, just becuase I pressed the CLI button 23 times per day. Then, when I try to make a little $20,000 cash advance, they tell me a can't have MY MONEY! How dare they do this!!! Congress outght to investigate!!!"


BofA cut my HELOC this spring when I refinanced. The strange part was that there was actually very little change in my situation or home value. We bought the house for $515k 2006 with 20% down, and immediately opened a HELOC for $48k. We dropped about $100k in cash into the house to renovate and at our refinance appraisal, the house appraised for $510k. (Uh, good thing we're not selling any time soon, or else I'd be weeping over that $100k.)

So a $5k drop in value triggered BOfA to lower our HELOC to $23k, which is just over the balance we have on it. I feel lucky we had a balance, or else they might have closed it completely. I'm also sad at the lack of a backup funding source, but I guess like all things, there is a silver lining... and in this case, the silver lining is that I felt the need to make an emergency fund and now we have $10k cash in the bank. It may not seem like much to many of you, but it's huge for us.

The mind boggling part is that for BofA, we are probably the perfect customers- we have a fairly large balance, an excellent credit history, and we make large, on-time payments. Does it get any better than that?

~fiasco

Morgan Stanley to freeze home-equity credit lines Link

Morgan Stanley told thousands of clients this week that they will not be allowed to withdraw money on their home-equity credit lines.

Personally, I think there is very little action an average borrower can take to avoid a freeze. For some banks, being in the wrong ZIP code is enough.

IMHO, the only foolproof way to "avoid" a freeze is to draw down the line and park the cash somewhere.

In the spirit of "preventing" a frozen HELOC, is there any consensus as to the best way to draw down the HELOC (and keep under the radar of the mortgage company)? Given that I had paid down the HELOC as part of an AOR, would the collective wisdom be to use several small checks to pay off each credit card, or write one check for the full amount, deposit this into a checking account, and then pay off each credit card? In other words, would one have a better chance of flying under the radar with several small-ish checks or one big check?

RyGuySD said: In the spirit of "preventing" a frozen HELOC, is there any consensus as to the best way to draw down the HELOC (and keep under the radar of the mortgage company)? Given that I had paid down the HELOC as part of an AOR, would the collective wisdom be to use several small checks to pay off each credit card, or write one check for the full amount, deposit this into a checking account, and then pay off each credit card? In other words, would one have a better chance of flying under the radar with several small-ish checks or one big check?
Personally, I don't think it matters either way. The most important thing is to get the hell out of Dodge as fast as possible. Especially if you are parking your AOR money in there.

Once you tap it out, they will see that whichever way you proceed.

I was listening to the radio earlier and it appears that it's illegal for banks to arbitrarily freeze or lower your HELOC just because you live in certain areas etc.

If a bank wants to curtail your HELOC, they MUST look at your house and circumstances on an individual basis. So if you got the squeeze, go talk to your loan officer and get it rectified. They are required to restore your HELOC

A bit more info here

Federal Guideline

from the PDF you were referring to said: Suspension or Reduction of Line
With some exceptions, Regulation Z prohibits a creditor from changing any term of a HELOC
account.9 Notably, however, a creditor may prohibit additional extensions of credit or reduce
the credit limit during certain periods,10 as long as any reduction in a borrower’s credit limit
below the outstanding balance does not require the borrower to make a higher payment.11
Consistent with Regulation Z, creditors may freeze or reduce a HELOC account when:12
• The value of the collateral declines significantly below the appraised value.
Although a “significant decline” will vary according to individual circumstances,
Regulation Z has been interpreted to mean that such decline in value has occurred
when the difference between the credit limit and available equity at the time that the
HELOC account was granted has been reduced by fifty percent from the difference
between these values at the time that the HELOC account was granted.13 An
association’s action to suspend or reduce a HELOC must be based on an assessment of
the value of “the dwelling that secures the plan.”14 Consequently, an association
would violate Regulation Z if it attempted to suspend or reduce the credit limits of all
HELOC accounts in a geographic area in which real estate values are generally
declining without assessing the value of the collateral that secures each affected

example: Assume that a house with a first mortgage of $50,000 is appraised at $100,000 and a $30,000
HELOC account is opened. The difference between the HELOC limit and available equity is $20,000, half
of which is $10,000. The creditor could prohibit further advances or reduce the credit limit if the value of
the property declines from $100,000 to $90,000.
14 12 C.F.R. § 226.5b(f)(3)(vi)(A)
2
HELOC account.15 While Regulation Z does not require a savings association to
obtain an appraisal to determine whether collateral value has significantly declined,16
an association should have a sound factual basis for reaching this conclusion. OTS
expectations for prudent collateral monitoring practices are addressed in the 2005
HELOC Guidance noted above.


Banks can use electronic valuations to show you the drop in value of your property. All you'd have to do to get your line reinstated would be to get an appraisal to show otherwise. Don't you think that the banks would check with legal before reducing lines?

soxfan1 said:

Banks can use electronic valuations to show you the drop in value of your property. All you'd have to do to get your line reinstated would be to get an appraisal to show otherwise. Don't you think that the banks would check with legal before reducing lines?


I didn't say this applies to all cases. only if a bank did it without actually evaluating the particular property.
the burden of proof is on them. Some banks are most likely blanketing the entire area without doing individual analysis,
hence the updated guideline.

I really don't think so, niicceem. They're not getting an expensive in-person appraisal of course, they're using a very quick and cheap alternative. For my HELOC (and from what I understand, most others), that's how they appraised when the HELOC was opened too (while I was on the phone). It's an important part of the very low costs that have been typical of HELOCs. I assume it's a slightly conservative assessment, and they would probably agree a physical inspection would be more accurate. They can probably give you contact information for local appraisers who they've certified - they won't just accept any stranger's appraisal. But you'll need to pony up the appraiser's fee.

It doesn't sound to me like the reduced lines have been arbitrary or unjustified at all - the cases I've heard about all seem like prudent reactions to real changes in the value of the collateral.

We got HELOC from National city bank in April 2006 and by contract drawing period is 10 years but yestarday at the bank they looked at the account and said that it is sheduled for review April 2009. Our loan is 60k with $0 taken out as of today and primary balance is 122k so total 182k.
If bank looking for 90% LTV then we need house to be apprised for around 202k - right?
On National City quick apprisal it came as 188k-209k link
It seems like we are facing line reduction if bank will go conservative for 188k, or we will need to pay primary down by 13k.
If any of FWers already got HELOC cut by National city? If yes what was initial LTV and final after cut? TIA

The FDIC Consumer News, Summer 2008 edition, has an article on Tips for Trying to Fix a Clogged or "Frozen" Home Equity Line

Probably obvious to you guys but I thought I'd post it up anyway.

Here's an interesting tidbit.

I am currently fighting with Chase over them freezing my HELOC line. Thank you to the poster that posted the TILA Regulation Z notes. That will come in handy.

Of course I initially opened a Chase HELOC when I bought my house for 460k that put me at 90% LTV. I immediately paid off the HELOC two weeks after closing and really haven't used it since. After paying this off I was at 80% LTV since I initially put 10% down (now at 20% equity).

Anyways got the letter from Chase and they are now saying my house is valued at 416k. They are now also saying that they are now only lending 75% LTV so they are in essence changing my contract.

They said they froze it because "Market Conditions due to declining market values which was determined by an electronic valuation".

Here's the catch where I want to whack them. I had a 50k house extention built on my house since I bought it. It's clearly OBVIOUS that Chase did not take this extension into consideration.

I offered to fax them a copy of my CO (certificate of occupancy), as well as my executed sales contract to show that I increased the value of my house. But they said I have to pay for an appraisal. B**lshit on that, no way I am paying for an appraisal when I can go to another bank and get a HELOC from them.

So I am wondering if this is lawsuit worthy. Taken right from Regulation Z:

an association would violate Regulation Z if it attempted to suspend or reduce the credit limits of all HELOC accounts in a geographic area in which real estate values are generally declining without assessing the value of the collateral that secures EACH affected HELOC account.

I currently have a call in to their "HELOC Resolutions Center" in regards to this. They are calling me back.

Also can they legally change their LTV considerations? They initially established this LOC at 90% LTV but now they are only saying they will lend up to 75% LTV. They are saying it's in my contract. Lets just say even if it is, doesn't this Regulation Z superseede this since they didn't do an actual market appraisal for my particular property?

I am curious if anybody here has went after a bank for Regulation Z violations.

I am currently talking to some lawyers about it. I would love to whack Chase if I could with a nice little lawsuit since they have pissed me off on so many levels.

I think Regulation Z violations award statutory damages ranging from $200-2000, plus attorney fees (which is why I am talking to lawyers), plus actual damages.

I just have to prove that they violated this. One lawyer told me if the equity in my house dropped more than 50% they can legally freeze my account. But I also paid down 12k of my primary morgage since I bought the house AND I added 325sq/ft of living space as well which adds to the value.

I don't see how they are in the right here... and a lawsuit may be in order.

Looking for some feedback.

The LTV change does sound bogus to me, and beyond what Regulation Z allows. They should also clearly factor in your current primary balance for their LTV calcuation. The rest sounds like it may be reasonable (& legal) on their part - electronic valuation is probably how they started the loan, and I believe they'd be willing to override with a more thorough appraisal. Provided you pay for it, and use a vendor they've approved. They can't do much with your receipts for how much you spent or the square footage, the increase in value can vary a lot depending on the details and neighborhood.

SlimTim said: I really don't think so, niicceem. They're not getting an expensive in-person appraisal of course, they're using a very quick and cheap alternative. For my HELOC (and from what I understand, most others), that's how they appraised when the HELOC was opened too (while I was on the phone). It's an important part of the very low costs that have been typical of HELOCs. I assume it's a slightly conservative assessment, and they would probably agree a physical inspection would be more accurate.

When USAA used the automaton appraiser on our house to issue our HELOC it came in 70k (almost 13%) higher than the human appraiser that came out the same month for our 1st mortgage refi. Anyway, they just notified me that they sent me a letter about a 'change' in our HELOC. I'm on pins and needles!

You know one lawyer I talked to didn't even know what "Regulation Z" I was talking about? And then he wanted to know where I got the document from. You know... the PDF from the Treasury's website.

For a minute on the phone I thought I was the attorney and he was the client.

DjPiLL said: Also can they legally change their LTV considerations? They initially established this LOC at 90% LTV but now they are only saying they will lend up to 75% LTV. They are saying it's in my contract. Lets just say even if it is, doesn't this Regulation Z superseede this since they didn't do an actual market appraisal for my particular property?

I've been looking all over the web for a similar situation to what I am currently going through with Chase. I have a 90% CLTV HELOC which was opened in 11/07 and the house was valued at $235K after a TransUnion interior report (walk-through appraisal) that they arranged. They sent me the freeze letter in 7/08 stating their automated valuation was at $207K which is BS when I look at recent transactions in my area for properties similar to mine. I spoke with an appraiser and he said over the phone he knew it would be $225K and possibly $230-ish after the walk-through. This is not an exact science and these guys can all be a few thousand dollars different for the same property. Chase says if my home comes in at $235K (the original appraised value) they will fully reinstate the 90% CLTV line and pay up to $350 for the appraisal that I scheduled (and that's his fee). They said they would mark the property for no further review when I asked whether they would just turn around two months later and freeze the line again. Now here is the shady part in my opinion- if the new appraisal comes in at even $234K (for argument's sake) they won't cover the appraisal fee and they will only reinstate the line at at 80 CLTV ratio!! I told them I reviewed my contract many times over and saw no mention of anything like this and they said "that's the way we are handling it" and the woman said in 30 years of banking she had never seen anything similar to what is currently going on in banking and real estate. So it sounds like they are making up the rules as they go and figuring their legal team can make it stick. I'm ok with them requiring the home's present value and reducing my line by $5K if it's valued at $5K less. I cry foul with changing the CLTV ratio of the loan from 90% down to 80% on an existing loan- fine for new heloc business. Their freeze letter states the line was suspended only due to declining home values and that they appreciate the responsible way which I've handled the account (always paid on time via automated electronic payment). Their letter *doesn't* state we are suspending your line because we want to get out of the 90% CLTV loan/line business, even for existing accounts!

Here's another datapoint. I just got a notice from GreenPoint Mortgage (I believe this is now owned by Capital One) that our $20k line has been frozen per a > 10% decline in market value from their AVM system. They also mention Regulation Z.

Interestingly this is almost exactly 2yrs to the day when this line was paid off fully from an AOR, so it's been sitting at 0 balance for a while. I guess at this point I may as well just close it completely so I can get their lien removed.

hey djpill - please keep us posted on your situation. I just got a similar note, even more ridiculous. My initial purchase price was 471 in 2005. put 80% down. built a $160k addition, and the home appraised at over $600k in 2006. today i got my letter suggesting that it's only worth $433k, and they lowered my $120k line to $12k. laughable. that's the thanks and goodwill I get for paying down that $120k line to less than $10k in 2 years and 2 months since closing it. how convenient for them to take this action now.

has anyone been tapping their unused lines and depositing the funds into a high yeld savings account so that they simply have the funds available in the event the lender reduces the available credit?

Trinob said: has anyone been tapping their unused lines and depositing the funds into a high yeld savings account so that they simply have the funds available in the event the lender reduces the available credit?yes.



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