Home equity lines being frozen

Many homeowners have a home equity line of credit (HELOC) available to them. Some have used the equity lines to make improvements or consolidate debt. Others have not used their line of credit, but keep it open in case of emergency of for renovations down the road.

But Money Magazine is now reporting that some lenders are canceling or freezing HELOCs without any warning to consumers. The logic behind freezing the lines of credit is simple: Lenders are trying to limit losses related to real estate in the wake of the subprime meltdown. No doubt that this type of action may leave some homeowners disappointed, however. Some may be well into the process of planning a remodeling project, and the loss of a HELOC may put a stop to those plans.

Experts say that you should take a look at the real estate market in your area. If real estate prices have fallen by 10% of more in the last year, you might be at greater risk of having your line frozen. You might also be at greater risk of a freeze if you bought your home with little money down. Lenders simply want to cap their risk on your home.

If you do think you're in risk of having your line frozen and you need that money, you may want to draw off the line sooner rather than later. Then again, maybe a freeze on your HELOC is exactly what you need to make you reconsider home improvements or other major purchases. It's probably not a bad idea to wait until the housing market stabilizes before you increase your indebtedness.

Tracy L. Coenen, CPA, MBA, CFE performs fraud examinations and financial investigations for her company Sequence Inc. Forensic Accounting, and is the author of Essentials of Corporate Fraud.