Home Equity Line of Credit Closed?

A Home equity line of credit, also known as a  HELOC, a popular way of home owners to access equity in their home have come under assault recently by banks.

In recent past, banks and financial institutions were lining up giving out home equity lines of credit to everyone. Sometimes loaning more then the actual value of a home. In a market of rising home prices and the belief that home prices will never decline across the entire U.S banks lowered their lending standards. As we all know, banks along with everyone else was  dead wrong about home prices.

As a result, banks have been lowering the amount of available credit on HELOC’s and actually closing HELOC accounts when no money is owed. This practice has been widespread, not just limited to people with bad credit ratings or borrowers who are behind on their HELOC payments. Banks have also made it much more difficult to qualify for a HELOC.

Gone are the days of loaning up to 100 percent or more of the value of a home. Some banks require more you to have more equity in your home then the historical norm of an 80 percent loan-to-value ratio (LTV). Meaning the loans on your home, including your mortgage, cannot exceed 80 percent of the value of your home.  

A close friend of mine had his HELOC closed by JP Morgage Chase on a home he and his wife owned. They didn’t owe any money on the HELOC but the interesting part of this story is they didn’t owe any money on their home at all. No primary or secondary mortgage balance, they owned their home outright but Chase still closed their home equity line of credit.