Many homeowners are getting that letter in the mail – the one that states how home values in the area have dropped and they are freezing your equityline. Other homeowners have gotten notices that their equityline is officially closed.
When your equityline is frozen. Your 2nd mortgage is most likely with an established lender (ex. Wells/Chase). They have done a blanket appraisal valuation in your neighborhood and have determined that property values have decreased so they are “freezing” your line, meaning that you cannot borrow against it any more, until a future date when they tell you it is okay (i.e. when the housing market rebounds).
Tip: I have had clients fight the estimated value the lender determined and win. One of the homeowners did this at the cost of an appraisal ($350), but did end up winning out.
When your equityline is closed. Unfortunately, there is nothing you can do. In this situation, your 2nd mortgage is most likely with a bank that has filed for bankruptcy or closed its doors (ex. National City/IndyMac). It is hard to get a new equityline, but if it’s important to you, let me know and I can either help you directly or, at the very least, can give you some direction. As a heads up: you must have equity and an extremely strong FICO.
If you have a balance on your equityline and pay down a significant portion, this will most likely alert the bank and they will then freeze your line. If you want to be able to borrow against it in the near future, it is best to just pay little portions. They may end up freezing it regardless, but at least your action won’t cause that result.
