HELOCs continue being slashed on clarkhoward.com

Clark has discussed in the past how banks are cutting or reducing home equity lines of credit (HELOC) because they're frightened of default. But the problem is apparently beginning to accelerate.

The consumer champ read one outrageous Chicago Tribune story that reported HELOCs are being cut right after they're issued in some cases! A circumstance like this speaks to the problem of redlining by geographic location or zip code, which is illegal.

Banks are required to do an individual assessment of your house. However, they now say they're doing individualized computer assessments, which sounds like something out of a conspiracy theory to Clark.

If you anticipate a need to draw on your HELOC, get the money out now and deposit it at another financial institution. Be sure to move all other accounts out of there too; you only want to have a HELOC at a bank, no other assets.

That prevents the bank from seizing any funds you may have on deposit if they decide to shut off your line of credit and call the loan due.

What others are saying

Are you sure about this?
Dear Clark,

I am concerned about your recommendation. As a former banker myself, I extended many HELOCs and Loans.

My concern about your recommendation is two fold. First, many families are experiencing layoffs and may not be able to afford the HELOC payment. As you know the HELOC payment is usually larger than a loan, which can be extended out over a term rather than based on the balance. Second, a person maxing out a HELOC will have a dramatically reduced FICO score, which can put them in a dangerous position reducing the possibility of extending credit if necessary.

My recommendation, although this might be hard to here, is to consider selling the property and down sizing. If they have any equity then they can keep that as a savings. Second, when someone is experiencing a financial hardship today, odds are it will be a mid to long term event, which will require more than maxing out the HELOC. Maxing out a HELOC in order to handle an emergency is exactly the kind of behavior that got America into the housing crisis that it is in today.
By Matthew Holmes @ 11/22/09 07:07:47 PMreport abuse
HELOC abuse by Regions Bank
I live in Birmingham, and got a "preapproved offer" of a home equity loan. Not thinking they really would approve it, I went in and applied. After two weeks of jumping through hoops and coming up with paperwork, proof of this and that, buying a new homeowners policy, today they said, no we decided not to approve it, sorry. All along, they keep assuring me that the loan was going through, was good as gold, then all at once, just said no. My credit rating is 775. I will close my account there next week.
By Cheryn Johnson @ 11/12/09 06:21:58 PMreport abuse
HEOCL
are there some banks more than others at risk, ie Wellsfargo and or suntrust
By Denise A Scott @ 11/10/09 10:53:33 PMreport abuse

Are you sure about this?

Dear Clark,

I am concerned about your recommendation. As a former banker myself, I extended many HELOCs and Loans.

My concern about your recommendation is two fold. First, many families are experiencing layoffs and may not be able to afford the HELOC payment. As you know the HELOC payment is usually larger than a loan, which can be extended out over a term rather than based on the balance. Second, a person maxing out a HELOC will have a dramatically reduced FICO score, which can put them in a dangerous position reducing the possibility of extending credit if necessary.

My recommendation, although this might be hard to here, is to consider selling the property and down sizing. If they have any equity then they can keep that as a savings. Second, when someone is experiencing a financial hardship today, odds are it will be a mid to long term event, which will require more than maxing out the HELOC. Maxing out a HELOC in order to handle an emergency is exactly the kind of behavior that got America into the housing crisis that it is in today.

By Matthew Holmes @ 11/22/09 07:07:47 PMreport abuse

HELOC abuse by Regions Bank

I live in Birmingham, and got a "preapproved offer" of a home equity loan. Not thinking they really would approve it, I went in and applied. After two weeks of jumping through hoops and coming up with paperwork, proof of this and that, buying a new homeowners policy, today they said, no we decided not to approve it, sorry. All along, they keep assuring me that the loan was going through, was good as gold, then all at once, just said no. My credit rating is 775. I will close my account there next week.

By Cheryn Johnson @ 11/12/09 06:21:58 PMreport abuse

HEOCL

are there some banks more than others at risk, ie Wellsfargo and or suntrust

By Denise A Scott @ 11/10/09 10:53:33 PMreport abuse

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Nov 10, 2009 -- HELOCs continue being slashed

What others are saying