1. Follow your lender’s formal appeals process. You should have received some type of appeals notice when you got your HELOC freeze notice by mail. Follow the instructions given and see if your lender will reconsider. It’s pretty common for them to reevaluate your credit risk and ask you to pay for an additional property appraisal.

2. If that doesn’t work, contact a lending regular. Who you contact will depend on the type of lending institution your home equity line is with.

If your home equity line is from a bank (usually with the word “National” in its name), send your complaints to the Office of the Comptroller of the Currency. (Phone: 1-800-613-6743, website).

If your home equity line is from a savings and loan or savings bank (usually with the phrase “Federal Savings Bank” in its name), send your complaints to the Office of Thrift Supervision. (Phone: 1-800-842-6929, website).

3. Head to court. This is the least desirable option and it may end up costing you more than the trouble is worth. Unless you’re prepared for a fight, it may be better to give up and seek alternative funding sources (such as taking out an HELOC or private loan elsewhere).

Although HELOC freezes are all too commonplace these days, there are definitely a few options left for creditworthy borrowers who have been treated unjustly.

See Also:

Office of Thrift Supervision Warns HELOC Lenders

FDIC Warns HELOC Freeze Lenders

HELOC Lender Obligations Under the Truth in Lending Act

The Washington Post recently reports:

“This summer, both the Federal Deposit Insurance Corp. and the Office of Thrift Supervision issued guidance to the institutions they oversee to remind them that when they change these credit lines, they have to follow the laws. Among the federal laws that protect consumers in these situations are the federal Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act and the Federal Trade Commission Act.”

If your home equity line of credit has been frozen, make sure you know the law. Freezes done without proper cause may be reversed.

See Also:

How Regulation Z Affects Home Equity Line of Credit Borrowers

FDIC Warns Lenders on Freezing HELOCs

Office of Thrift Supervision Warns HELOC Freeze Lenders

Hopefully, this instruction will encourage banks to avoid freezing individual home equity lines of credit without considering a borrower’s unique circumstance (for example, a home with a high value in an area that is generally declining).

IndyStar recently published an article that details some of the most important laws lenders are being asked to follow. One law borrowers may be particularly interested in is “Regulation Z.”

Here’s how they explain it:

 ”…With limited exceptions, Regulation Z of the Truth in Lending Act prohibits creditors from terminating a home equity line of credit and then accelerating repayment of the outstanding balance. Exceptions include situations in which the borrower fraudulently obtained the loan or failed to repay according to its terms.

Additionally, under Regulation Z, a lender can’t just reduce or suspend access to a line of credit without cause, said Montrice Godard Yakimov, OTS managing director for compliance and consumer protection.

A suspension or reduction of a home equity line must be based on an assessment of the value of “the dwelling that secures the plan,” the OTS said in its guidance. Consequently, a financial institution would violate the law if it attempted to yank credit limits of all home equity credit line accounts in a geographic area where real estate values are generally declining.”

If government regulators are willing to enforce these laws, some borrowers may be protected from unnecessary HELOC freezes.

See Also:

Federal Truth in Lending Laws

Office of Thrift Supervision Warns HELOC Freeze Lenders

FDIC Warns Lenders on Freezing HELOCs

The short answer: Yes. Banks may freeze home equity lines. However, they can only do so under specific circumstances.

The Oregoneon reports:

“In general, banks are prohibited from changing the terms of home equity lines of credit; however, there are exceptions. Federal regulations allow lenders, for example, to freeze additional extensions of credit or reduce the applicable credit limit “during any period in which the value of the dwelling that secures the plan declines significantly below the dwelling’s appraised value for purposes of the plan,” according to FDIC regulations. To use this exception, however, lenders must determine that a “significant decline” occurred.

Even though full individual appraisals aren’t necessary under the law, institutions should have a sound factual basis for determining that a property has experienced a significant decline in value. For example, automated valuation models or local tax assessments may be used.”

Most banks have followed federal guidelines for freezing home equity lines. However, last month the FDIC sent warning letters to many lenders, encouraging them to meet their legal obligations.

See Also:

FDIC Warns Lenders About Freezing HELOCs

List of Lenders Freezing Home Equity Lines of Credit

The FDIC says that home equity lines will be reviewed on a case-by-case basis. But, no information about the review process is currently available.

It is possible that some IndyMac HELOC customers will never be able to access their lines again.

See Also:

IndyMac Bank Goes Under

FDIC Warns Lenders About Freezing HELOCs

Consumer Affairs reports:

“IndyMac was founded in 1985 and became the leader in “alt-A” mortgages, those written to consumers whose credit was good if not outstanding, on terms that included adjustable interest rates, flexible pay plans and other features that often meant consumers’ loan balances grew instead of declining over time.

The company was also heavily into subprime and home-equity loans and often required little or no documentation of borrowers’ income, critics said.

The Center for Responsible Lending, a consumer advocacy organization, said IndyMac’s decline was caused by “unsound and abusive lending” practices.”

One question some IndyMac borrowers are asking: “Do I still need to make my HELOC / mortgage payments?” The answer is an unequivocal “yes.”

Although some customers may lose money by saving more than the FDIC insurable $100,000, mortgage clients are still responsible for the full amounts of their loan. The bank will be held by the government and then sold – not paying on time can result in foreclosure.

See Also:

HELOC Freeze 

Here are a few of the most notable points:

- According to regulation, HELOC lenders may only reduce a borrower’s line of credit under certain circumstances.

- Lenders are permitted to reduce a credit line should the borrower’s home “decline significantly below the dwelling’s appraised value for purposes of the plan.”

- The Federal Reserve says a “significant decline” may be a drop of 50% or more in the home’s equity. However, this number may vary depending on individual circumstances.

- Lenders don’t need to do full individual appraisals to freeze a line. However, they must have a factual basis for believing that a property’s value has declined.

- Lenders may also suspend HELOCs if they believe that the borrower will not be able to pay back the loan due to a change in financial circumstances. This belief must be founded on a factual basis (i.e. a loss of income and late payments).

- Borrowers must be notified of HELOC freezes within three business days. The lender must specify whether borrowers need to request reinstatement of their lines. If they do not specify this, the lender must monitor the account and reinstate the line as soon as circumstances permit.

The definition of “significant decline” is of major interest. Many borrowers have had their HELOCs frozen due to a home value decline of much less than 50%. Unfortunately, the 50% example given by the Federal Reserve seems to be more of a guideline than a hard and fast rule.

Regardless, the above information can be extremely useful to borrowers facing line freezes. If your lender has frozen your line without following proper procedures, you may want to request a reconsideration.

See Also:

Which Borrowers are Freezing HELOC Lines?