Here’s the latest update.

Lenders Freezing Home Equity Lines of Credit

Countrywide (recently froze almost all HELOCs in Las Vegas)

Washington Mutual (sending more letters this week)

IndyMac Bank

Capital One (Greenponing Mortgage Unit)

Bank of America

Chase

CitiGroup

National City

Suntrust

USAA Federal Savings

AmTrust Bank

Wachovia

It’s important to note that these lenders are not freezing all of their customer’s HELOCs. Certain customers are receiving freeze notices when the lender determines that their property value has declined. The value is generally based on the lender’s AVM (automated valuation model) and not a physical appraisal.

Some mistakenly believed that the HELOC freeze would end in January. However, borrowers are still receiving notices. Since property values are continuing to decline, it is safe to assume that the HELOC freeze will continue.

See also:

What to Do if You’re Hit By the HELOC Freeze

How the HELOC Freeze Can Damage Your Credit Score

“Last week a Realtor in San Diego wrote, ‘Just after I made a large payment of $10K (only $350 payment was due), they took away all of my credit line. This is putting me in a panic and possible bad situation. I have been with WaMu for many years and have had many home loans with them, and never missed a payment, and have always had bank accounts with them, in addition, my credit is great. I had no notice or warning whatsoever, of course if I had, I would not have given them $10,000 that I did not need to.”

Since January, over 100,000 HELOC customers from multiple lenders have received such letters. HELOC lenders are freezing lines because they do not want to lose any more money from HELOC foreclosures on upside-down properties (homes for which the borrower owes more money than the property can be sold for).

Unfortunately, HELOC lenders do not need to warn their customers before freezing or reducing their limits. If you plan on using your HELOC in the next few months, you may want to withdraw the needed money now and place it in a high-yield savings account or CD.

See Also:

Strategic Withdrawals to Avoid the HELOC Freeze

What to if You’re Hit by the HELOC Freeze

Rates on home-equity lines of credit have dropped to 6.27% from 8.25% since September of last year, according to Bankrate.com. Partly as a result, the amount that homeowners borrowed against their lines of credit rose slightly in the fourth quarter of 2007 — the first such rise since early 2005, according to data from Equifax Inc. and Moody’s Economy.com. Rates on home-equity lines of credit should fall further after the Fed’s latest cuts, but that might have less effect than would ordinarily be expected, as some banks make these loans harder to get…

Indeed, mortgage brokers say their customers are having a harder time borrowing against the equity in their homes. “We’re seeing a lot of lenders freezing whatever is outstanding,” says Mitch Ohlbaum, a mortgage broker with Legend Mortgage Corp. in Los Angeles. He says some clients, worried about getting cut off from existing lines of credit, have started drawing down their lines in a pre-emptive move.

“They’re putting the money into savings accounts and CDs because they’re afraid they’re going to lose access to the funds,” he says. “It’s their safety net.”

It can be difficult to qualify for a HELOC in today’s market, but it’s not impossible. Even Countrywide (who sent out over 100,000 HELOC freeze notices earlier this year) is still advertising for new home equity borrowers.

See Also:

Will Federal Rate Cuts Affect Your HELOC APR?

What to Do if You’re Hit by the HELOC Freeze 

To understand how this works, you’ll need to comprehend three terms: index, prime, and margin. Read more…

This article will help you understand your rights under the Truth in Lending Act. When you interact with a HELOC lender, you will be prepared to make an informed decision and stand up for your legal rights. Read more…

Washington Mutual HELOC Basics

Lender Type : major bank

Website : www.wamu.com/personal/loans/home_equity

Phone Number: 877-551-2740

Washington Mutual HELOC Programs

The general WaMu HELOC offers a draw period of 10, 20, or 30 years. WaMu offers a variety of HELOC withdrawal options including checks, specialized credit cards, and cash advances. The repayment period is dependent upon the draw period selected. One of the best WaMu HELOC features is the option to switch interest payments between fixed and variable rates. Borrowers can also opt for interest-only payments during the draw period. The max WaMu HELOC line is $500,000.

New WaMu mortgage customers can take out a Washington Mutual Mortgage Plus Loan, combining both a primary mortgage and a HELOC account. Borrowers can withdraw from their ever-increasing HELOC line as their equity builds. Additionally, borrowers have the option of resetting their mortgage rate up to twice a year. It’s a relatively easy way to take advantage of lower rates without refinancing. The first rate reset is free as are changes from fixed to variable rates. Other rate changes are $250 a pop.

In addition to its HELOC programs, the lender also offers a WaMu home equity loan. Borrowers can be given a maximum of $500,000 in one lump sum. WaMu home equity loans come with a fixed interest rate and a repayment period between 5 and 30 years.

Washington Mutual HELOC Requirements

Like most lenders, WaMu wants borrowers who have stable employment, a good credit score, a low debt-to-income ratio, and a significant amount of equity in their property. See: How to Qualify for a HELOC.

Washington Mutual HELOC Freeze Information

In early 2008, WaMu notified some borrowers that they can no longer withdraw from their existing HELOC lines. This was in response to declining home values and not a result of borrower delinquency. New borrowers living in areas with declining home values may find it very difficult to take out a WaMu HELOC unless they have established significant equity. WaMu is still advertising for new HELOC customers.

See Also:

How to Negotiate HELOC Terms

Countrywide HELOC Basics

Lender Type : major bank

Website : www.countrywide.com/equity

Phone Number: 1-800-763-1054

Countrywide HELOC Loan Programs

There are several options available to Countrywide HELOC customers.

The basic Countrywide home equity line of credit offers a 5-10 year draw period, with an option to renew. During the draw period, the borrower is able to make minimum monthly payments of interest only. The repayment period is fifteen years. Customers can generally borrow up to 90% of their homes’ value.

The Countrywide Super Streamline Home Equity Line of Credit is an express HELOC designed for recent Countrywide mortgage customers. Borrowers who have recently taken out a home loan with Countrywide can get a HELOC based on the paperwork they previously submitted. This option is only available to people whose jobs and financial status have not dramatically changed since the original loan documents were filed. Aside from the paperwork issue, the terms are generally the same as Countrywide’s basic HELOC.

In addition to these two HELOC programs, Countrywide offers a lump-sum home equity loan. A borrower can take out as much as $500,000 based on the equity in his home. Countrywide home equity loans have fixed interest rates, although some interest-only repayment options are available.

Countrywide HELOC Loan Requirements

As with most HELOC lenders, Countrywide loan standards have tightened in 2007/2008. See: How to Qualify for a HELOC.

Information about the Countrywide HELOC Freeze

In early 2008, Countrywide led the national HELOC freeze by sending out over 100,000 freeze notices to borrowers. Due to a decline in home equity, these borrowers were told that they no longer have the option to draw on their existing HELOCs.

HELOC letter recipients were reportedly chosen by an algorithm examining home values. The letters were not the result of borrowers’ late payments or other situations.

Although it significantly more difficult to take out a HELOC with Countrywide now, it is still possible. Countrywide is still advertising their HELOCs and giving out lines to people who have not maxed out their equity or living in sharply declining markets.

See Also:

How to Get the Best HELOC Rates and Terms

HELOC Lending Standards Tighten

Many news outlets have picked up the story, some indicating that the new statistic is a result of a declining economy. The truth is more complicated, however. While homeowners do have less equity, they also own property at significantly higher values than those of a decade ago. (See this chart from the New York Times).

The MSN MoneySmart Blog shares further insight from Michael Rizzo, a senior economist at the American Institute for Economic Research:

“We contacted Rizzo with a couple of questions, and here’s what he had to say: “I just wanted to point out that 60 years ago, homeowners (in aggregate) owned a large percentage of a small pie and while homeowners’ share of the pie today is much smaller (leverage making up nearly half of housing values), the pie is substantially larger. Would you rather own 80% of $800 or so billion or 50% of $5 trillion? The point is to get people thinking.”

That certainly provides a new perspective for those concerned about the home equity situation.

HELOCs and home equity loans may be to blame for some of the shrinking equity. Other causes include high home costs and the low down payment options available during the recent housing boom.

See Also: How a HELOC Works

The downside of withdrawing funds from your HELOC is that you will be charged interest until you pay back the money. Many people take out HELOCs instead of home equity loans because they want to have money at their disposal and not pay interest until they choose to withdraw. Removing funds from your HELOC now negates that benefit.

If you were hoping to withdraw from your HELOC sometime later this year, you may be able to counterbalance the interest charges by putting the money into a high-yield savings account or CD. San Francisco mortgage consultant Julian D. Hebron recently published a helpful blog post that shows how HELOC borrowers can withdraw money from the HELOCs now and still come out ahead of the game:

If borrowers have open lines of credit they were planning to access during 2008, they should strongly consider taking a draw now, before an unforeseen limitation on their ability to access their equity. The Prime Rate is the benchmark rate for HELOCs and is currently 6%. HELOCs are priced at Prime plus/minus a base rate. The current average HELOC rate for a good credit borrower with some equity is about 6.5%. In most cases, interest on HELOC amounts up to $100,000 is tax deductible. If a borrower is in a 33% tax bracket, the after tax rate on this money is about 4.355%. So if they took a HELOC draw and placed it into a CD or another similar liquid vehicle earning approximately 4.5% (or 3.015% after tax), they can ease the cost of those funds on an after tax basis.

If you’re looking for a place to keep your HELOC funds until you’re ready to use them, there are several competitive options right now:

Countrywide is offering a 6-month CD with a 4.10% APY. The minimum balance is $10,000.

Primer America is offering a 6-month CD with a whopping 7% APY. There is a $1000 minimum and a $5000 maximum. Because Primer America is a credit union, you may have to meet certain requirements (live in a particular area, have a particular employer, or pay an application fee) to join.

If you’d rather keep your HELOC funds liquid, Washington Mutual is offering an attractive savings account with 4% APY, when the account is linked to a free checking account.

See Also: What to Do if You’re Hit by the HELOC Freeze

How to Qualify: In order to qualify for a HELOC in today’s market, you’ll need to prove yourself with a high credit score (above 620), stable employment, and a low debt-to-income ratio. Most importantly, you’ll need to have a significant amount of equity in your home. Gone are the days when lenders would set their HELOC credit limits at 90-100% of the home’s equity. Now, some lenders are offering around 65-75%.

If you live in an area that has not seen a severe decline in home prices, your chances of qualifying are increased. In many cities, home prices more than doubled during the boom. Even if your home is worth less now than it was two years ago, you may still have thousands in equity.

Borrower Beware: If you do qualify for a HELOC, read over the terms and conditions carefully. Some lenders offer borrower-friendly terms that limit the possibility of a HELOC freeze. If your lender does not offer such a clause, use your HELOC wisely. If you have a large home remodeling project, for example, you may want to draw money from the HELOC at the beginning of the project rather making small payments for supplies and labor. Although you will pay more in interest, you won’t find yourself with a HELOC freeze letter and a pile of unpaid bills.

See Also: HELOC Lending Standards Tighten