Saturday, June 28, 2008

If A Bank Reduces Your HELOC -Try This..

HELOCs are shrinking with real estate pricesA 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.

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. This move is part of a trend towards conservative lending that is a response to the too liberal lending policies that have led to the current issues in the credit industry.

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:

  1. Call your lender's Customer Service line. Do not send an email.

  2. Politely ask why the HELOC limit was reduced. Listen carefully to explanation.

  3. Explain why you would like your HELOC reinstated. Acceptable reasons may include home improvement projects or improper home valuation by the lender.

  4. 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.

The key to the success or failure of your request may lie completely in the manner in which you approach the problem. Remember that the person you're speaking to in the bank may be able to help you, but they are probably not the person who instituted the policy, and its not a good idea to be too aggressive with them if you want their help. After all, its only human to want to help people that are nice to you or be less inclined to help those who are not. And in this case, the Human Element of an appeal may work in your favor.