One fact is clear from the past few months: home equity lenders are extremely unpredictable. Because of declining property values, many HELOC clients have had their lines frozen or decreased. It’s hard on borrowers, but it makes financial sense for the banks.

However, HELOC lenders haven’t stopped at that. Many customers have been surprised to find their home equity lines reduced while their property value has stayed the same. Or worse, when they live in one of the few areas with rising values.

Some borrowers have been notified that their home equity lines will be closed permanently due to inactivity if they do not submit a formal request to keep it open. Many financially responsible borrowers take out a HELOC as a long-term source of emergency cash. They don’t draw on it for everyday consumer purchases, but open it as a backup cash reserve. One such surprised borrower received this notice:

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…

They claim it’s an “opportunity,” but require the borrower to mail a request if he doesn’t want his HELOC terminated in the next 15 days. Keep in mind, HELOCs aren’t as easy to get as credit cards. The borrower probably had to supply documentation, have his credit checked, and pay fees in order to open this line. Lenders may be worried about borrowers drawing too much on their HELOCs, but they’re also targeting those who draw too little.

While all of this is going on, many HELOC lenders are still looking for new customers. Sometimes the targeted homeowners are in the same areas that current customers are receiving HELOC freeze notices. Home equity loan advertising is still strong, both online and through the mail.

One homeowner reported this tale:

“I own a vacation condo in Naples, Fla., where local real estate broker Glenn Ginsburg of A Delta Realty of Naples reports condo prices have declined 7.7% to $300,000 in the first quarter of 2008 from the same quarter in 2007. Yet my lender, Countrywide, just sent me a letter this week inviting me to cash out some of the equity in my place, which they mysteriously figure at $54,302. (The fine print on the back of the offer says this sum is based on “statistical data,” not on an appraisal, and the solicitation isn’t a commitment on their part).

I bought my home in 2004 for $220,000, and judging by recent sales of identical models, it would currently sell for around $250,000.”

The bottom line: you can’t predict what your HELOC lender is going to do. Some customers still find it simple to take out a home equity loan. Others can’t hold on to what they already have - even if they follow the rules. The only thing HELOC borrowers can do now is wait out the storm and hope the market will stabilize.

See Also: HELOC Freeze Help

Tags | Heloc, heloc freeze, HELOC Lenders, home equity loan, lenders