HelocBasics » home equtiy line of credit

HELOC Loan-to-Value Ratio Requirements Get Tough

Jamie — Sat, 14 Jun 2008 04:50:58 +0000

During the housing boom, HELOC lenders regularly offered home equity lines of credit at 90% or even 95% of the borrower’s home value.

As home values declined, these loans became increasingly risky for banks. If a borrower has a 95% loan-to-value HELOC and his home declines 6%, the borrower is unable to pay back the loan simply from selling the property.

To combat this problem, most lenders have instituted tougher loan-to-value requirements for new HELOCs. Money 911 reports:

“Before you borrow, you need to be sure that your home still has the equity that you think it has and that a lender is willing to let you take out a HELOC — a home equity line of credit — which is a better option than a home equity loan. Many lenders won’t let you go past 85 percent LTV with a HELOC. Some are as low as 60 percent LTV. It’s harder to borrow against your home today than it was two years ago.”

If you’re planning on taking out a HELOC, make sure you have substantial equity in your home. Gone are the days when borrowers could take out a home equity loan right after their purchase loan left the closing table.

How to Qualify for a HELOC

National City Lender Faces Probation

Jamie — Tue, 10 Jun 2008 07:29:43 +0000

National City, a major HELOC lender, is now on a form of probation with federal banking regulators. Reuters reports:

“The banking subsidiary of National City Corp has signed a confidential memorandum of understanding with U.S. regulators, promising to address its rising amount of bad loans, a source familiar with the matter said on Monday.

The memorandum signed by the bank and the Office of the Comptroller of the Currency requires the bank to improve what examiners see as potential problem areas.”

If National City does not improve, it may become subject to formal sanctions.

Answers to Common HELOC Questions

Will Fewer HELOCs Result in Less Spending?

Jamie — Fri, 06 Jun 2008 07:17:54 +0000

One of the biggest complaints about the mortgage crisis is that homeowners used their equity irresponsibly during the boom. Now that HELOCs are harder to get, will homeowners spend less? The Wall Street Journal explores this question:

“Steindel [economist at the Federal Reserve Bank of New York] spoke at an event sponsored by the National Economists Club in Washington. He also pointed to a marked decrease in homeowners taking home equity loans since the beginning of 2006 — a decline that he noted was wasn’t accompanied by a corresponding decrease in consumer spending. Steindel argued that consumer spending, until the last two quarters, “has held up pretty strong.”

“Home equity is like an ATM,” Steindel said. “It’s nice to have, but it isn’t what determines your spending.”

That’s certainly an interesting choice of words, since critics have long derided homeowners for withdrawing money from their equity “like an ATM machine.”

See Also: How a HELOC Works