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How to Unfreeze an Equity Line of Credit

[Jan 20, 2009.]

 

Banks have been doing what they can to protect themselves amid falling home values and increasing delinquencies on auto loans, credit cards, and home equity lines of credit. Over the last few months, many homeowners have received letters from their bank informing them that their home equity line of credit has either been reduced dramatically or frozen all together.

This can be disastrous for many who rely on their equity lines of credit to make home improvements, fund a child's college education, or simply use as an emergency source of funds. Take the story of Christopher Laxton, as reported in the Chicago Tribune, who had his home equity line of credit frozen just after losing his job. With two kids in college and little left in savings, they were relying on the equity line of credit to help pull them through.

What do you do if your line has been frozen?

First, find out from your lender why the line of credit was frozen and if there is anything that can be done to have it reinstated? In many cases, you'll be told that it was frozen due to a drop in home values or there was a "material change" in your financial situation.

Next, obtain a copy of your credit report to determine if something new has been reported that may indicate a "material change" in your situation. Look at how each tradeline is being reported, paying close attention to the dates associated with the accounts and the balances. If anything is being reported incorrectly, you will need to contact the credit bureaus to have them update your credit reports.

If your credit profile seems to be as good or better than when you first applied for the home equity line of credit and your lender has cited declining home values as an issue, you may need to purchase a new appraisal of your home. Check with your bank to determine which appraisers are on their approved list and what the ordering process is.

If they refuse to cooperate after demonstrating that your credit profile is fine and your home has not declined in value as much as your bank had believed, it may be time to take your line of credit to a new bank. Some banks are looking to reduce their exposure to home equity lines of credit to the point where nothing will change their mind while others will be open to starting a new banking relationship you via a new home equity line of credit.

 

About Author:

Chris Rocks is the Regional Director of the National Credit Federation (NCF), a consumer advocacy group that assists small business owners and consumers overcome debt and credit challenges.

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