If you have a Home Equity Line of Credit (HELOC) with unused credit, you may not have access to that credit for long. A few months back Countrywide led the pack by suspending 122,000 borrowers from tapping their lines and now they have suspended ALL lines in the city of Las Vegas, Nevada. Other ‘bubble’ cities are being targeted across the nation.

Since January, Countrywide, WAMU, BofA, IndyMacBank and Wells have frozen hundred’s of thousands of HELOC’s preventing home owners access to money they thought was available. Many use these lines for home improvement, business, college tuition etc and now, have been left out in the lurch.  CONTINUED…

Home equity lines to 100% of the home’s value with little verification of income or employment were common until mid 2007. Nearly every large bank in the nation made these loans hand over fist. They were hell-bent on making it as easy as possible for you to spend every penny of equity in your home.

Now that values are down sharply across the nation and we are learning very quickly that the ‘negative equity’ (owing more than your home is worth) is the leading cause of mortgage default, lenders are in a panic. First, most have stopped making HELOC’s over 80% loan-to-value and to get one, you must be a near-perfect borrower.

For the banks, these loans present a major problem because they make up such a large percentage of the balance sheet at banks such as Wells Fargo, BofA, Chase, National City, Countrywide and IndyMac. In foreclosure, the second mortgage lender rarely gets a penny because homes sell at such reduced prices and the first mortgage holder gets it all. Because of this, many second mortgage lenders are not even foreclosing, rather using more traditional means of collecting. As a matter of fact, Home Equity Loans are being modified by large banks right now for those borrowers in distress. I am hearing of significant principal balance reductions.

To see how buried the nation’s top banks are check out this report by Fitch entitled ‘Big Banks Home Equity Woes’. Fitch: Big Banks Home Equity WoesFitch: Big Banks Home Equity Woes

Therein, may lie the silver lining for the home owner. In the future, lenders may just offer you a nice discount to buy back your second mortgage note. This gets you right in your home and gets them out of a very risky loan that have little to no value in the mortgage secondary market right now. Reports say these loans are selling for one to five cents on the dollar... -Best, Mr Mortgage