A Home Equity Line of Credit is bank product that grants homeowners access to the equity in their home at anytime, usually using checks.
Often called a HELOC, these equity-based credit lines function very much like credit cards:
- The rate is adjustable, tied to Prime Rate
- There is a minimum monthly payment
- There is a pre-set spending/credit limit
But different from credit cards is that a HELOC is “guaranteed” by real estate and with real estate values in question nationwide, many banks are exercising a little-known clause in the HELOC contract. Remember that banks are the custodians of their depositors funds, and are in business to make a profit. And Bankers read the papers and watch television and are as impacted by the negative media regarding real estate values in many parts of the country. Comdine this with a swing towards a more conservative approach in the banking industry and you have a growing concern on their part.
With alarming frequently, banks are reducing the pre-set spending limits on their active equity lines. Via USPS, lenders are notifying homeowner with $100,000 HELOCs that their new HELOC limit is $25,000, for example.
And the banks aren’t being discriminate based on payment history or local real estate conditions, either — it’s happening everywhere with equal force.
The good news is that banks will accept appeals on HELOC reductions on a case-by-case basis.
One way to appeal a HELOC reduction is:
- Call your lender’s Customer Service line. Do not send an email.
- Politely ask why the HELOC limit was reduced. Listen carefully to explanation.
- Explain why you would like your HELOC reinstated. Acceptable reasons may include home improvement projects or improper home valuation by the lender.
- Be prepared to write a formal letter, if asked. Address the issues explained in #2.
Banks will typically not reinstate a HELOC if a borrower has been delinquent on payments, or lives in a severely depressed neighborhood. However, because lenders rely on computer models to assess risk, it’s always a good idea to ask.
Sometimes the Human Element of an appeal can work in your favor.