Why Banks Are Freezing Residential Home Equity Lines of Credit

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Some banks are freezing residential home equity lines of credit because they are concerned that a decrease in a home's market value may result in a borrower owing more than the market value for their property. Find out why banks can tighten up their credit guidelines with help from a financial specialist in this free video on home loans and money management.

Part of the Video Series: Home Equity Lines of Credit
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Video Transcript

A client of mine called me today, and they had gotten a letter from their bank stating that they were not going to be able to use their home equity loan anymore. My name is Matt McKillen, I'm with Innovative Financial Group, and people are questioning, why are banks refusing lines of credit right now. Well as you're aware there is quite a foreclosure crisis in the country right now, and the housing market is really in turmoil. And what the banks are doing is that they're concerned that where they had maybe put the home equity line of credit on your home, let's say twelve or twenty-four months ago, that your home in today's market might be declining in value. So what a lot of the banks are doing is they're freezing lines, they're de-activating lines or they're just basically locking them down so that no one can borrow or take any future advances on the equity line. And again the reason for that is they're concerned that if your home has went down in value, that possibly you may end up owing between your first and second mortgage, more than the current market value of your property. This is just a trend that's going on right now, I believe it will change in the future. But the banks are tightening up on their credit guidelines. If you need additional information, you can always contact Matt with Innovative Financial Group.

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