Banks slicing home equity lines
In what might turn out to be a domino falling move, some lenders have been freezing or reducing access to existing home equity lines. Reports from The New York Times, the San Francisco Chronicle, The Boston Globe, and ABC News indicate many big banks are “quietly” yanking or halting equity lines.
Sadly, while the loan amount may have been based on a full-blown appraisal, the new valuations are mostly done on the computer. And as a result, without local knowledge, they can be too low or too high - and therefore unfair to the homeowner. The sudden freeze can interrupt plans already in the works, such as weddings and home improvements.
The lesson here is, if you have a home equity line, don’t make long range plans without making the funds you’ll need as liquid as possible. You wouldn’t want to have signed a contract for a remodel, and your old kitchen already in the dumpster, only to find out when the mail arrives that you can’t write the checks to pay for the new kitchen. Have a home equity line for emergency cash? It may not be there when you need it.
Banks are nervous about their risk exposure, and are now looking to additional ways to manage their portfolio risk better. These actions are supposedly due to receding home values but they may have an unintended side effect: worsening the recession. How? By cutting off the prime funding source for home improvements and similar projects. Less cash to spend on improvements will likely mean more trouble for contractors, home centers, and small businesses alike.