Your credit line might be frozen - What you need to know
The newest “thing” in the sub-prime loan crisis is this: Banks now are freezing credit lines (called HELOC’s - Home Equity Lines of Credit) because the amount borrowed (including both the HELOC and the mortgage) is exceeding the value of the home.
For example, CBS reports that Countrywide, one of the largest U.S. lenders, has frozen 122,000 HELOC’s. It will also be interesting to see what happens when the bank that gives the mortgage is different from the bank that gives the 2nd mortgage/HELOC. Who wins?
The CBSNews website had some good tips for dealing with this situation, including:
In other words, as usual, forewarned is forearmed.
It’s been a long time since we Baby Boomers have experienced the phenomenon of lower home values. As a matter of fact, I can’t remember a time in my adult life when we didn’t have the expectation of increasing home values. Homes were bought as much for investment as for a place to live and raise a family. I have bought and sold over 20 homes since I graduated from college (I’m betting this number isn’t that uncommon for a very mobile generation), and we always bought homes with an eye to resale.
I could say “I told you so,” but when the banks started coming out with “100% LTV (loan to value) 2nd mortgages/HELOC’s a few years ago, I wondered why no one was questioning this tactic. It seemed very risky to me, and I wasn’t even thinking of any kind of universal phenomenon of lower home values. I questioned the tactic because an individual might have to sell a home at lower cost.
I’m betting that this “credit line freeze” thing will lead to fewer HELOC’s and second mortgages in general. Hang on to your hats; the ride will continue to get bumpier before it settles down.
Tags: baby boomers, credit line freezes, HELOCs, mortgages, sub-prime crisisRelated Stories
POSTED IN: Boomer Businesses in Difficult Financial Times, Finance
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