In the last year, terms and qualifying requirements on home equity lines of credit have become extremely strict. Rightly, many unqualified borrowers are now unable to take out home equity loans. However, many qualified borrowers are also suffering under the new requirements.

A recent American Banker article explains that lenders should avoid punishing those who would borrow responsibly:

“To be sure, many lenders will say the questionable mortgage lending innovations of the last 10 years provide all the more reason for across-the-board tightening now. The trap in that response, however, is that various groups of borrowers are in very different circumstances. Absent an analytical understanding of differences in customer segments, crisis-mode initiatives are sure to translate into lost opportunities for profitable growth with solid borrowers, lost opportunities to anticipate and cap loss exposure with distressed borrowers, and lost opportunities for effective repayment negotiations in a world where delinquent households generally have multiple creditors standing in line.”

Ignoring responsible borrowers hurts those who have planned their finances with care. But, it also hurts the banks who are already struggling and, in some cases, going under.

See Also:

New List of Lenders Sending Home Equity Line Freeze Letters

How the HELOC Freeze Can Damage Your Credit Score

Tags | Heloc, heloc crisis, heloc freeze, home equity line of credit, mortgage crisis