Tuesday, February 26, 2008

Alert: Trying to tap into home equity?

Trying to tap into home equity? We'll see - Los Angeles Times

Home Equity Lines of Credit as flexible, emergency cash tools are a thing of the past. If you have a line of credit and want access to that money, you may be out of luck.

Many lenders are freezing lines of credit due to the drop in housing prices and this is taking people by surprise.

My mom is one of the victims (and I don't use that term lightly). Her line of credit with Countrywide (a firm I truly despise) was frozen, but not until after she made a $50,000 payment on it, not knowing she would not be able to access that money anymore. She never would have made that payment as having access to cash was paramount.

Many borrowers with excellent credit are seeing their lines shut down - they are being treated like sub-prime borrowers and punished because of the poor decisions of the companies making the loans available.

The industry will not recover if people don't trust the industry (lending) - people do not trust the lending industry, they fueled the out of control price increases by making loans that they never should have made, now we are paying the price.

My advice - if you need access to cash in the short term and your line of credit has not been frozen - max it out before they freeze it. If you don't have too, don't make payments on your HELOC over what's required (again, if you think you will need access to cash and this is your only avenue).

The lenders are going to cause a run on the lines of credit, perhaps making things worse than they were before.