A recent release from his office explains:

“…Mike Haridopolos today called for hearings in Tallassee to investigate claims that after banks received hundreds of billions in federal bailout money they squeezed consumers and fraudulently or arbitrarily reduced Home Equity Lines of Credit (HELOC) to improve their own bottom lines.

‘I have heard the stories of this happening across our state and our country, and the courts are filled with lawsuits,’ says Haridopolos (R-Merritt Island). ‘This needs to be investigated because if true it’s outrageous. The very banks that are bailed out with taxpayers’ money then stick it to homeowners?’

Haridopolos is calling for hearings in Florida and is also asking that Congress investigate the claims of wrongful HELOC suspensions.

See Also:

How to Protect Your Credit in Case of a HELOC Freeze

Courthouse News Service reports:

“Yakas filed a class action, alleging breach of contract and unjust enrichment. She said Chase breached the HELOC in three ways: by failing to obtain an appraisal by a licensed appraiser, by using the unreliable AVM to assess her property value and by charging her a $20 annual fee after it suspended her credit line.”

It’s about time that someone stood up for HELOC borrowers’ rights. Lenders can certainly limit or even freeze HELOC lines if there is not sufficient equity remaining in a property. However, it is unfair to freeze HELOCs in batches or based on these so-called “automated valuations” that do not require any actual appraisals or personal considerations.

photo credit: The-Lane-Team

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HELOC Freeze Help

Borrowers dealing with undesirable changes from their credit card issuers may be able to mitigate some of these problems by transferring their debt to a HELOC.

Reuters explains:

“View your credit cards and other loans, such as a home equity line of credit (HELOC), as a portfolio of debt, just as you would consider all of your retirement accounts to be an investment portfolio. Make decisions based on the portfolio in its entirety. That may mean diversifying — setting aside one card for some uses and another for different uses. Or shifting balances from a high-interest rate card to a low-interest HELOC.”

Grouping all these lending products together as your “portfoilo of debt” is an excellent way to add some perspective to the situation. By considering your HELOC alongside your credit cards, you can easily compare interest rates, fees, and other features. Often, you’ll find that you can save hundreds or even thousands by transferring debt from a high-interest credit card to a low-interest HELOC.

See Also:

Is a HELOC Right for You?

New Jersey Business News explains:

“The closing costs for a home equity product are often substantially less than those associated with a first mortgage, giving it an advantage over a cash-out refinancing. Nationwide, the average origination and title fees on a $200,000 mortgage in 2009 totaled $2,732, according to Bankrate’s annual survey of mortgage closing costs…

If you have the room in your household budget for this additional loan payment, the HELOC or home equity loan saves money by funding the projects over a shorter time span than a cash-out first mortgage.”

The downside of a HELOC is that it is backed by your house. If you can’t make your payments for any reason, you could end up losing the roof over your head when the lender forecloses. So, make sure you have a plan in place for paying back the home equity loan and be aware of any balloon payments that will be due.

On the positive side, your HELOC interest may be tax deductible if the loan is used to improve your home. That can add up to significant savings especially when combined with a competitive rate.

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HELOC Tax Deductions

But, 2010 may be the year that frozen HELOCs begin to thaw.

PBS’ Nightly Business Report explains:

“As housing prices and the economy begin to stabilize, many lenders are writing lines again. They’re not the unbelievable deals they used to be, but they can still be a relatively cheap way to borrow. For example, it can be wise to pay for a new car with funds from a HELOC, since some auto loans charge far higher interest rates than HELOCS do.”

If your area wasn’t hit too hard with the real estate downturn or if you hold a significant amount of equity due to paying down your mortgage, you may be able to qualify for a low-interest HELOC. Give it a try…even if it didn’t look so promising last year.

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How to Qualify for a HELOC

Monitor Bank Rates gives this concerning antedote:

“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.”

Wow…a HELOC cancellation while the homeowner owes nothing? That’s definitely worth taking note of.

photo credit: Thairms

See Also:

HELOC Freeze Help

The Chicago Tribune reports:

“Find out if your second lender will subordinate to your first lender. If you have a first and a second mortgage (also known as a home equity loan), find out whether the second lender will subordinate to the new first lender. That will allow you to refinance your first mortgage, while leaving your second loan in place. Many second lenders will not agree to this, and if yours doesn’t, you may not be able to refinance at all unless you pay off the second loan.”

In past years, HELOC lenders almost always agreed to subordination. But, now that foreclosure rates are so high, many are trying to force potential refinancers to pay back their second mortgages early.

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HELOC Questions and Answers

BankingMyWay reports:

“One way is to get a home equity line of credit, or HELOC. It allows you to borrow against the equity in your home — the difference between the home’s value and what you owe on the mortgage.  Just remember, it’s essential to get the HELOC approved before you lose a job, as you probably won’t qualify afterward.

With a HELOC, you draw money only as you need it – and as much as you would with a credit card, but with a much lower interest rate. For most borrowers, interest paid on home equity loans is deductible on the federal income tax return.”

If you decide to take out a HELOC as safety net, keep in mine that you’ll be responsible for the balance even if the house goes into foreclosure. Unlike credit card debt, a HELOC is secured by your property. Don’t make the payments, and you may find yourself without a roof over your head.

See Also:

Is a HELOC Right for Me?

Negotiating HELOC Terms

WLNS News reports:

“For those carrying a balance, fortunately, most credit reports differentiate credit cards from HELOC draws. A HELOC’s unavailability should not have a significant effect on a credit score. To compensate for the lack of a HELOC as an emergency resource, do whatever you can to build an emergency fund with savings. Start with only $50 a week if need be, and add more when you can.”

In some cases, it is even possible to have a HELOC loan reinstated by petitioning the lender.

See Also:

How Does a HELOC Affect My Credit Score?

How to Un-Freeze a HELOC

USA Today reports:

“Spring is typically the big season for home remodeling, but this year’s falloff will be felt across many kinds of related businesses, including contractors and architects, home furnishings stores and home designers.

Spending on home improvement projects is expected to decline at an annual rate of 12.1% by the third quarter…

The drop-off is being blamed on several trends. Fewer homes selling means fewer remodeling jobs. Home-equity lines of credit, which many homeowners used to tap to finance their projects, are harder to get because of the battering that lenders have taken from loan delinquencies.”

On the bright side, this means that fewer homeowners will be maxing out their HELOCs for unnecessary expenses, possibly resulting in fewer foreclosures in the future.

photo credit: Hendricks Photos

See Also:

HELOC Foreclosure

Is a HELOC Right for You?