Mortgage Rates Spike On The Federal Reserve's January 2010 Meeting Minutes

Mortgage markets reeled Wednesday after the Federal Reserve released the minutes from its January 26-27, 2010 meeting. Mortgage rates in New jJersey are now at their highest levels since the start of the year.

The Fed Minutes is a follow-up document, delivered 3 weeks after an official FOMC meeting. It's a companion piece to the post-meeting press release, detailing the debates and discussions that shaped our central bankers' policy decisions.

The Minutes is a terrific look into the Fed's collective mind and, yesterday, Wall Street didn't like what it saw. Specifically, the report disclosed that:

1. The Fed plans to break support for mortgage markets after March 31, 2010
2. Raising the Fed Funds Rate will be a key part of the Fed's strategy to tighten monetary policy
3. The fundamentals behind consumer spending strengthened modestly

Furthermore, the Fed Minutes said that there is a growing risk of "higher medium-term inflation". Inflation, of course, is awful for mortgage rates.

Overall, the Fed's economic optimism appeared stronger after its January meeting as compared to its December one. A stronger economy should lead to better job growth and higher home prices throughout 2010.

Mortgage rates were up yesterday but they remain historically low. And many analysts think that after March 31, 2010, rates will rise even more. Therefore, if you're buying a home in the near-term, or know you'll need a new mortgage, consider moving up your time frame.

Every 1/8 percent makes a difference in your household budget.

Who Benefited From Falling Stocks

Yesterday, the stock market suffered its largest one-day point loss since September 17, 2001, and its sixth-largest point loss in history.

Not everyone got punished, however. Two groups of people, in particular, welcomed yesterday's losses:

1. Home buyers out shopping for a mortgage


2. Homeowners that snoozed through last week's mortgage rate drop

See, as the stock market dropped yesterday, investors anxiously moved their money away from risky investments like stocks and into the safe haven of government-backed debt.

This includes mortgage-backed debt, of course.

As traders poured into bonds, bond prices rose. They did so beginning at Market Open, all the way into Market Close. And, because mortgage rates move in the opposite direction of mortgage bonds prices, mortgage rates fell Monday. A lot.

Today, the Federal Open Market Committee meets, adjourning from its scheduled conference at 2:15 P.M. ET. In the Fed's press release, among other things, markets expect Ben Bernanke & Co. to address the financial system's stability -- or lack thereof -- that helped to fuel Monday's selling action.

If markets find the Fed sympathetic, expect stock markets to rally, and mortgage rates to rise.

Translating Fed Speak

For the third consecutive meeting, the Federal Open Market Committee left the Fed Funds Rate unchanged at 2.000 percent.

Of interest to mortgage rate shoppers, the FOMC led its press release with comments about the health of the financial and labor markets, calling them "strained" and "weakened", respectively. The relative weakness in both of these areas has contributed to low mortgage rates of late.

The FOMC also noted in its release that, although economic growth has slowed this year, the historically-low 2.000% Fed Funds Rate should foster "moderate economic growth" in the future.

In the wake of the announcement, Wall Street is rallying. Investors like what the Fed had to say and this is attracting money to the stock market at the expense of bonds.

Mortgage rates have given up all of Monday's gains, and then some.

Source
Parsing the Fed Statement
The Wall Street Journal Online
September 16, 2008
https://online.wsj.com/internal/mdc/info-fedparse0809.html

How The Government Take Over of Fannie Mae and Freddie Mac lowered Mortgage Rates

When comparing two investments with equal risk, a rational person will choose the investment with a higher rate of return.

This behavior is called Risk Aversion and is a basic tenet of personal investing.

An off-shoot of Risk Aversion is that a rational person will only invest in an instrument of greater risk if the returns are greater, too.

The chart at right illustrates this concept, comparing return rates on two investments:

• U.S. Government bonds
  
• Mortgage-backed bonds

The difference in investment return rates is sometimes called a "spread" and the historical spread between government debt and mortgage debt is somewhere near 1.5 percent. 

However, notice how the spread started to grow starting in July 2007.

July 2007 marked the "official" start of the Credit Crunch and as mortgage delinquencies grew nationwide, so did the market's perceived risk of investing in them. 

By the start of this month, the spread had nearly doubled.

But that all changed Sunday.  When the government announced its takeover of Fannie Mae and Freddie Mac, it put the same "risk-free guarantee" on mortgage debt that has helped keep U.S. government debt so cheap to finance and the spread immediately shrunk.

This is one reason why mortgage rates fell Monday and why they should continue to stay low over the near-term.  With the U.S. government backing the mortgage market, there's no room for the risk premium that helped keep rates high this past year.

It doesn't mean more people will qualify for conforming home loans, but for the ones that do, financing should be cheaper.

Government Takover Lower MOrtgage Rates

Sunday, the U.S. government assumed control of Fannie Mae and Freddie Mac.

The papers have done a terrific job talking about the political perspective of the takeover, and the economic perspective of the takeover, but very few people have addressed the key news for homeowners.

Mortgage rates are plummeting.

The reason why mortgage rates are falling post-takeover is because of Fannie Mae and Freddie Mac's collective role in the U.S. mortgage market.

1. They guarantee about half of the nation's $12.1 trillion in mortgages
2. They purchased and securitized four-fifths of the nation's home loans as recently as six months ago

See, earlier this year, Wall Street punished Fannie Mae and Freddie Mac for their weak balance sheets and large numbers of delinquencies.  This led to Wall Street to raise the borrowing costs for the two firms across the board which, in turn, led to higher mortgage rates for Americans.

But today, with their balance sheets backed by the U.S. government, Fannie and Freddie are now viewed as "safe" by the eyes of Wall Street. 

This has lowered their borrowing costs, pushing down mortgage rates for the four-fifths of the country that is currently channeling their home loans through Fannie or Freddie.

(Image courtesy: The New York Times)

Watch the Weather Impact Mortgage Rates

Three years to the week after Hurricane Katrina caused $81.2 million in damages, Tropical Storm Gustav is charting a similar Gulf of Mexico path.

Memories of Katrina are making oil traders nervous.  The 2005 storm shut down 30 platforms and 9 refineries.  And, this week, oil prices are up nearly 4 percent on fears that the market, once again, may be disrupted by storm. 

Mortgage rates are edging higher on the news.

The link between oil prices and mortgage rates is not a direct one, but it's worth paying attention to. 

Rising oil prices strain business and consumer budgets, creating inflationary pressures on the economy.  And at no time was this relationship more evident than in May and June of this year.  As oil prices reached new, all-time highs almost daily, Americans felt the impact each time they opened their wallets -- the Cost of Living inflation gauge reached a 17-year high in July 2008.

Inflation is the enemy of mortgage rates so as inflation rises, mortgage rates tend to rise, too. 

And this is one reason why mortgage rates are ticking higher this morning -- there is an overriding fear that Gustav will strengthen into a full-fledged Hurricane before making landfall, causing damage to oil refineries and shipping ports around the Gulf of Mexico.

Damage reduces oil supplies and that causes oil prices to rise.  It's basic supply and demand.

Gustav is expected to make landfall Monday or Tuesday.  If the storm continues on its path, we may see mortgage rates continue to trend higher.  If the storm dissipates, rates should reverse.

Conforming mortgage guidelines are the Home Loan Rule Book, delineating between applicants that approved for a mortgage and those that do not.

Effective today, the rule book just got a little bit tougher.

According to Fannie Mae, homeowners converting their primary residence into a second home or investment property will be subject to additional underwriting scrutiny. Fannie Mae is leery of lending to people that may be over-extended.

The complete underwriting update is available at the Fannie Mae Web site but some of the more important points are summarized below, divided into Second Home and Investment Property.

Second Home Guideline Changes

• Without 30 percent equity in the second home, mortgage applicants must have 6 months worth of PITI reserves for both properties in their bank accounts.
• With 30 percent equity, the PITI reserve can be reduced to 2 months.

Previously, there was no minimum reserve requirement. Now, a second home buyer needs to know that they can carry that property for a period of time with their current savings.

Investment Property Guideline Changes

• With 30 percent equity in an investment property, 75% of the monthly rental income can be applied toward the applicant's monthly household income.
• Without 30 percent equity, rental income may not be applied to the applicant's monthly household income and 6 months PITI is required for both properties.

Previously, 75% of the rental income was allowable regardless of equity, and minimum reserve requirements were 2 months. Due to the number of "investors" who bought property without equity, and then walked away from the properties when they were unable to rent them, some method of involving the investor in the success and failure of the investment was sought.

Even though just a small percentage of Americans own second homes or investment properties, the conforming mortgage guideline changes impacts homeowners everywhere.

This is because more restrictive guidelines lead to two separate, but concurrent, outcomes:

1. The demand for homes reduces because fewer buyers qualify for mortgages
2. The supply of homes increases because fewer sellers can refinance into more affordable home loan

Less demand and more supply places downward pressure on home prices.

Now, remember that mortgage guidelines continuously evolve and what's accurate as August 1, 2008, may not be accurate six months down the road. In other words, confirm what you're reading about mortgages online with your loan officer before making any real estate-related decisions.

Capital Gains Tax Change

Monday, President Bush signed the Housing and Economic Recovery Act of 2008 into law and the press jumped on the obvious storylines:

• First-time home buyers get a $7,500 purchase "credit"


• Conforming loan limits move to $625,000


• Delinquent homeowners get a lifeline from the FHA


• Local governments get federal money for buying and restoring foreclosed homes

However, tucked away on the last few pages of the text, in a section called "Revenue Offsets", there's an important tax implication. The new housing law changes the way in which capital gains exclusions are calculated on the sale of a residence.

Under the old system, a taxpayer was entitled up to $250,000/$500,000 of tax-free gains from the sale of a home if filing separately/jointly provided he lived in the residence for at least 2 of the preceding 5 calendar years.

Savvy homeowners exploited this verbiage, moving from home-to-home every 2 years to avoid paying capital gains, especially in states where the prices were rising so rapidly that they could make tens or hundreds of thousands of dollars in that short 2 year window.

The new law thwarts this tactic.

Capital gains exclusions are now calculated by taking the capital gains on the sale of the home and multiplying it by a ratio of how long a person has lived in a home, by how long that person owned the home.

In the example above, a person living in a home for 2 of 5 years would be entitled to 40 percent of tax-free gains on a home sale instead of all of it. Therefore the impact on home buyers who are not planning on relatively short term moves (under 5 years) will be minimal. Like many other of the bill's provisions, the lawmakers attempted to direct this bill to relief for the home buyer who is trying to find a place for their family, and not the real estate investor or "flipper". As always, however, it's best to talk with a qualified accountant about how tax code changes may impact you personally.

The new capital gains rules go into effect starting January 1, 2009.

Freddie Mac's SEC Filing : Makes Buying a House In Philly Today's Concern

Sometimes, the hardest part about news is knowing where to find it.

In its filing with the SEC last week, Freddie Mac stated that it will "pursue increases" to its middleman fee. This would likely make buying a home more expensive for every conforming borrower in the country.

The exact verbiage from the filing is extremely opaque and unless a person knew what things like "delivery fees" were, or "bulk and flow transactions", he'd be inclined to skip right over the offending passage, tucked away on Page 72 in a paragraph labeled Business Outlook.

But, if we paraphrase the passage and simplify it for laypersons, it reads something like the following:

We didn't charge enough fees in 2007 to account for the massive number of defaults. We don't plan to make that mistake again in 2008.

Strangely, in the entire 1,394-page filing, this passage is the only mention of "future default costs" leading to more loan charges. In other words, it's easy to see why this story didn't get picked up by the major news outlets.

To the media, the major angle in Freddie Mac's filing was that it registered to sell $10 billion worth of securities. For everyday Americans, though, the major story was a different one -- mortgage fees may never be as low as they are today.

Therefore, if you know that you'll need a new, conforming home loan soon -- for either a home purchase or a refinance -- consider moving up your timeframe. Whether rates rise or fall, it's likely you'll pay a more money to borrow money only because you waited. And combined with Philadelphia's rating by Forbes Magazine as one of the 10 Best Places to Buy in the US, going out and finding the right home today is the smart move.

The implied fee increase would be the third this fiscal year, following increases in December 2007 and in April 2008.

Why Buyers are Back to the Market in Pennsylvania & New Jersey

Statistics won't always tell the whole story, but they often provide good perspective.

The graph at right shows Existing Home Sales data going back three years. An "existing home" is one that can't be called new construction; a "used home", so to speak.

Note the steep decline from 2005 through late-2007.

Since November, however, Existing Home Sales have remained within a very tight range and appear to have reached a flattening point.

The Existing Home Sales data supports the word-on-the-street from real estate agents nationwide that buyers are returning to the housing market in search of good values.

But let's not forget -- demand is only half of the story. There is the supply factor, too, and the supply side of the housing market is showing the same leveling signs as the demand part.

Looking at the national inventory at left, the number of existing homes for sale has hovered near 4.5 million for the last several months. No change suggests strength.

Now again, statistics won't tell the whole story but there are plenty of positive signals from the real estate market right now, just like there are negative ones, too.

This is one reason why real estate data causes so much debate -- people want to take an either/or proposition about the state of the real estate and it doesn't work like that. Real estate can be simultaneously strong and weak and when it is, buyers look for value.

On a local level,rates have been good, and our local inventory is smaller then the national inventory. Combined with Philadelphia being walkable (and therefore energy friendly) and affordable, people have started acting on their real estate needs and making purchases.

Perhaps this is why the national housing data is beginning to level off after a 3-year slide. There's good values to be had, and today's home buyers know it.

(Images courtesy: Wall Street Journal Online)

Calculating the Effects of Inflation

The phrase "Consumer Price Index" can be intimidating and unclear to Americans. It's an economic term, after all, and not a part of everyday American language.

It even has its own abbreviation to add to the confusion -- CPI.

So, when a layperson hears that "CPI is rising", it's not always clear what it means. The tendency, therefore, is to ignore the news.

This is one reason CPI is commonly substituted with the more down-home expression of "Cost of Living".

In contrast to the term "CPI", the phrase "Cost of Living" is a lot more clear. When people hear that the Cost of Living is rising, instinctively, they get it. And now they can see how it works in numbers, courtesy of the Bureau of Labor Statistics.

The Inflation Calculator at the government Web site helps a person compare household income to the changing Cost of Living between any two years since 1913. For example, a U.S. household earning $48,201 in 2007 would have to increase that income to $50,868 just to keep up with "life".

CPI touched a 17-year high in June, jumping 5.000 percent year-over-year. Without a 5.000 percent increase an income, a household falls behind.

Cost of Living Figures Increase

Another day, another piece of inflationary data.

June's Consumer Price Index showed a 5 percent year-over-year increase in what is now the largest annual Cost of Living increase for Americans in 17 years.

This is bad news for active home buyers because rising costs are considered inflationary and inflation causes mortgage rates to increase.

Predictably, mortgage rates jumped Wednesday morning after the CPI data was released and they continued to move higher throughout the day.

For most home loans, mortgage rates finished the day up by 0.125 percent.

Applying Wednesday's mortgage rate movement to the true cost of owning a home, the eighth-percent increase added $8 per $100,000 mortgaged per month. The silver lining of this cloud in our market is that our housing stock is still so affordable, that now may be the time to act before rates increase more.

(Image courtesy: The New York Times)

Fannie & Freddie Are Yesterday's News

Investors have turned their attention back to the U.S. economy this morning, causing yesterday's mortgage rate improvements to unwind a bit.

Rates had fallen Monday after the Federal Reserve and U.S. Treasury's joint announcement in support of Fannie Mae and Freddie Mac. Today, it's the data that is taking center stage.

Most notably, the U.S. Dollar is trading at an all-time low versus the Euro and other currencies.

This is a negative for active home buyers because American homeowners repay their mortgage interest in U.S. dollars. When the dollar loses value, so does the value of those interest payments so mortgage rates end up increasing in order to attract new investors.

Another reason why mortgage rates are higher this morning is that June's Producer Price Index registered much higher than was expected, posting its largest one-month gain since November 2007.

PPI is a lot like the Cost of Living index, except that it measures operating costs for businesses instead. When business costs are increasing, they are often passed onto consumers and this is why rising PPI is thought to be inflationary and inflation -- like a weakening dollar -- pressures mortgage rates to rise.

So, while Monday's rate improvements haven't completely erased, today's action reminds us that mortgage markets wait for no one and yesterday's mortgage rates rarely carry forward.

Especially when inflation is in the mix.

(Image courtesy: The Wall Street Journal)

Consumer Confidence & the Economy

When people lack confidence, prophecies or concerns sometimes become self-fulfilling.

Last week saw the largest Bank failure in our history, when there was a run on IndyMac Bank, causing the third largest bank failure in our history.

According to Marketwatch.com, " Regulators said the "immediate cause" of IndyMac's failure was a deposit run in recent days that began after a June 26 letter to the OTS and the FDIC from New York Senator Charles Schumer was made public. The letter voiced concerns about IndyMac's soundness.

By July 10, depositors had pulled more than $1.3 billion from their accounts, the OTS said in a statement. "

The impact of the IndyMac failure has been softened by the FDIC insurance which provides $100,000 on some covered deposits, and up to $250,000 coverage on IRA deposits, but the cost to the FDIC will be substantial.

Would IndyMac have failed without the failure of consumer confidence caused by the Schumer later? Maybe yes and Maybe no, but the lack of confidence was in fact a precipitating factor.

As the government moves to shore up the trouble financial industry, the big question is when and how will consumer confidence be restored? The facts of the economy seem to have much less impact then media coverage and its impact on public perception, and action.

Perhaps we would all be better served, like the people in the movie "Its A Wonderful Life" if we just remember not to panic. In our market at least, the price of homes is very affordable, and the risk of loss of equity is minimal according to the risk assessment done of major metropolitan areas, recently concluded. But I'll cave that for another post.

Whose Take on the Economy do You believe?

"Economic uncertainty" is turning into a 2008 buzzword and there's a lot of good reasons why.

On the one hand, there are precursors to inflation in the economy:

• Rising oil costs
  
• Rising food prices
  
• Higher Cost of Living

On the other hand, there are precursors to recession in the economy, too:

• Mounting job losses
  
• Less access to credit and/or loans
  
• Falling consumer confidence data

The pie chart at right illustrates just how uncertain the "experts" are about the state of the U.S. economy. They're evenly split, right down the middle.

This isn't good news or bad news for Americans, per se, but it does legitimize the idea that the economy's future direction is in doubt. This is one of the biggest reasons why there's been no clear direction for mortgage rates or stock markets since the start of the year, and that can impact the housing markets, too.

As the experts remain confused, so are the consumers, so spending becomes as limited as the confidence of the consumer.

Until the picture gets more clear, we can expect the volatility to continue.

(Image courtesy: Wall Street Journal)

Philadelphia Mortgages Made Affordable Through the Herd Effect

A noon-hour, mortgage-bond rally rendered homes more affordable for Americans Tuesday. It was the second straight day on which this happened.

On both days, the action was swift.

The speed at which Monday's and Tuesday's respective rallies tore through mortgage markets illustrates how deep the uncertainty that surrounds the U.S. economy really is.

One reason why the market swings so quickly is that, lately, traders are tending to follow the herd.

As a mortgage rate shopper, it's outstanding when the herd is moving in your favor. However, when the herd moves in the opposite direction, the impact on your monthly housing cost can be huge.

Volatility has been the common theme for mortgage rates in 2008 and it's likely to remain a factor until the nation's economic picture gets a little bit more clear.

Some experts are saying that may happen in 2009. Therefore, you should be prepared for rapid mortgage rate movement and act accordingly when you see a rate-and-payment combination that makes sense for your household budget.

The payment you see in the morning is likely to be gone by the afternoon. So with prices as affordable as they are in the Philadelphia Marketplace, now is an opportunity to act that may disappear.

How Your Payment is Tied to the Fed Rate Announcements

The Federal Open Market Committee adjourned from its 2-day meeting aton June 28th. It' announced that the group will leave the Fed Funds Rate unchanged at 2.000 percent.

However, it's not what the Fed does that has markets so interested. It's what the Fed will say.

One of the Federal Reserve's roles is to promote stability in the U.S. economy by protecting it from two major threats:

1. Inflation
2. Recession

The Federal Reserve's primary weapon against both of these hazards, though, is the same -- the Fed Funds Rate. To combat inflation, the Fed raises the Fed Funds rate. To fight recession, it lowers the Fed Funds Rate.

But in today's economy, there is evidence of both inflation and recession meaning that the Federal Reserve is likely to leave the Fed Funds Rate unchanged for fear of setting the economy too far towards either threat.

Therefore, markets will be left looking for clues in the carefully-worded press release signed by Federal Reserve Chairman Ben Bernanke and the other voting members of the FOMC.

If the Fed admits added vigilance against inflation, it's expected that mortgage rates will fall because inflation causes rates to rise. By contrast, if the Fed harps on the downside risks in the economy, it's expected that mortgage rates will increase.

Either way, today's press release should be a market-mover.

If you're currently floating your mortgage rate or are deciding between different lenders, be aware that mortgage rates will enter a period of extreme volatility this afternoon.

It may be prudent to complete your rate shopping before 2:00 P.M. ET.

Using a Gift For Your Down Payment

When a home buyer is gifted cash for a downpayment, there is a right way and a wrong way to receive the funds.

The right way includes:

• Completing an acceptable gift letter
  
• Documenting the withdrawal of funds with receipts
  
• Documenting the deposit of funds with receipts

The wrong way is to ignore the rules that mortgage lenders clearly spell out for you.

Mortgage lenders watch gifts closely because they want to make sure that the "gift" is not really a loan-in-disguise. If it's a loan, the total dollar amount must be counted against the home's total loan-to-value and higher loan-to-values typically increase lender risk.

If it's a gift, a signed and dated gift letter should accompany the home loan application. An example:

I am the [relationship to recipient] of [name of recipient] and this letter serves as evidence that I am gifting [name of recipient] [amount of gift] to be used for the purchase of the home at [complete address of property].

This is a gift -- not a loan -- and there is no expectation of repayment.

Signed,
[Signature of donor]

For additional evidence that the gift is legitimate, the recipient should make sure that deposited funds are not commingled at the bank. If the gift is for $12,000, for example, then the recipient's bank deposit receipt should indicate that a $12,000 deposit was made.

There may be legal and tax liabilities when gifting funds between family members so if you're unsure about how donating or receiving a gift may impact you, call or email me. If I can't answer your question, I can certainly refer you to somebody that can.

How Job Losses Can Help People Afford More !

On the first Friday of each month, the Bureau of Labor Statistics releases its Non-Farm Payrolls report.

More commonly, it's called the "jobs report".

The jobs report is a sector-by-sector look into the U.S. economy and whether businesses are hiring -- or firing -- workers. This is one of the reasons why its release is so hotly anticipated each month -- the jobs report can reveal a lot about the state of the U.S. economy.

Last month, the economy shed 62,000 jobs.

Now, many people will assume that job losses like this are terrible for the U.S. economy. Sometimes, that's true.

This month, it's not.

Given the ongoing tug-o-war between inflation and recession, markets are somewhat pleased with the June job loss figures because job losses reduce the likelihood of inflation in the U.S. economy.

Inflation is considered by many -- Ben Bernanke included -- to be among the top threats to the U.S. economy -- it devalues the dollar and leads to increases in the Cost of Living.

Inflation also threatens home affordability because mortgage rates tend to rise when inflation is present.

June's job losses -- while bad for those impacted -- is helping to relieve inflationary pressures on the economy and that is boosting markets performance this morning. Stocks are slightly up, and mortgage rates are slightly down. Whenever mortgage rates trend down, the amount of house a buyer can afford increases, and in a time of stable prices, that means more house for your dollars.Publish Post

(Image courtesy: The Wall Street Journal)

If A Bank Reduces Your HELOC -Try This..

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.

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.