Released: November 02, 2008

Opening the tap on home equity

Source: Bob Tedeschi, New York Times (Free Registration)

Many homeowners who have taken out home equity lines of credit have learned in recent months that these loans are not as useful as they initially seemed.

Lenders are struggling to minimize risk, and because they are especially at risk to lose money on residential real estate loans, they are cutting back on homeowners’ credit lines or freezing them altogether.

Many people who took out home equity credit lines of $100,000 on their home and used only, say, $20,000 have received letters informing them they can no longer borrow additional money, just as their stock portfolios are dwindling. The banks’ reasoning, typically, is that area property values are dropping, so the equity does not actually exist.

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