We all know that banks are in trouble as a direct result of extending loans to people who couldn’t afford to repay them. When property values began rapidly decreasing it became obvious that the banks had a big problem. Many homes were worth less money than the existing mortgage and people began just walking away from them. Although this is an irresponsible move, it has been done often. Other people lost their jobs and were unable to continue making mortgage payments. Some were able to negotiate new terms with their lenders, skip some payments, and extend the loan period. All of these can help a person stay in their home and eventually get their finances back in shape. This, however, requires that the lender works with you. Some are very cooperative as they do not want to own your home, especially today, when the market is so poor and prices are continuing to fall. Others are not as amenable to changing the agreed-upon terms.
In an effort to shore up their financial situations, some banks have begun freezing Home Equity Lines of Credit (HELOC). This can have a great effect on the consumer who is depending on this line to meet a variety of expenses. Some borrow against their home to finance a college education. Others might be in the middle of a major home improvement when they discover their line has been frozen. How do they complete the work that is being done and pay the contractor? Borrowers applied for these lines of credit because they had plans for the money. These plans have now been disrupted.
Apparently, the banks are freezing these credit lines in areas where home values have decreased the most. It is not necessarily a reflection of the homeowner’s credit rating or payment history with the bank. Although the banks insist that they are sending letters to customers about freezing these credit lines, a number of people have stated that they did not receive a notice. These people often find out about the freeze after they have withdrawn funds and had their checks bounce. They are now incurring fees in addition to having to find another source for payment of debts. This situation is causing numerous problems for the customers who depended on their banks to honor their commitment for these lines of credit.
Tags: credit card lines
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