Homes No Longer ATMs

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During the boom years, when credit flowed like cheap wine, many homeowners used their homes as personal ATMs, borrowing against the inflating value of their homes. Not anymore. Today, fewer people have equity to tap as home values sunk in many parts of the country, and banks are using stricter lending standards for loan origination.

That much is clear from a new report from credit tracker Equifax. New home equity lines of credit -- or HELOCS -- dropped off by a stunning 76 percent, from $21 billion in November 2007 to $4.9 billion in November 2009. You also needed a higher credit score to get one and even with that score would likely qualify for a smaller loan, according to the company's January 2010 survey of new account origination trends, which is not available online.
It's become much harder to get a loan in two of the hardest hit foreclosure states: California and Florida. In 2007, 16 percent of all home equity lines were opened in California. In 2009, California's share dropped to just 7 percent. Florida was the number two state in HELOCs in 2007, with 8 percent of the market. Last year, the state accounted for just 4 percent of new equity line.

Not all states saw a drop. Pennsylvania had the biggest jump in new equity lines, claiming almost 8% of the market in 2009, double its share in November 2007. New York and New Jersey also saw a slight bump -- about 1 percent -- in the HELOC market.

All told, the top ten equity line states accounted for 47 percent of all new equity line business. In 2007, 57 percent of all equity line originations were in the top ten states, suggesting that banks are spreading their risks to more states.

The average equity loan also dropped from $103,840 in November 2007 to $80,724 in November 2009. That may reflect dropping home prices more than a desire to borrow less.

But these days, the hurdles are higher. You needed a higher credit score to get over $100,000. Only those with credit scores 820 and higher qualified for HELOCs over $100,000. A credit score over 800 was needed to get a line over $80,000.

What a turn about! In 2007, people with scores as low as 700 qualified for HELOCs of over $80,000. In fact in 2009, 80.2 percent of all new equity lines originated were to people with scores over 740. In November 2007, credit was easier to get with 68 percent of all new credit lines requiring at least a score of 740 -- put another way, 32 percent of equity lines went to people with scores under 740.

The bottom line? If your credit score is below 660, you can pretty much forget about getting an equity line unless banks ease credit terms. Consider that 96 percent of all home equity lines went to people with scores over 660 in 2009.



Lita Epstein has written more than 25 books including The Complete Idiot's Guide to Improving Your Credit Score.
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