Mortgages: Can You Stop Line of Credit Freezes?
The Federal Reserve has published a new guide to home equity line of credit financing — and what you can do if your lender reduces or freezes your HELOC.
To be polite, not a damn thing.
The Board’s 5 Tips for Dealing with a Home Equity Line Freeze or Reduction first tells us the following:
Late Notice
Your home equity line of credit (HELOC) lender must provide you a written notice if they have frozen or reduced your HELOC. Your lender must send the notice to you no later than 3 business days after the freeze or reduction. The notice also must include information about any other changes to your HELOC.
I’m not kidding. This is really what it says. Your lender must notify you three days AFTER it has lowered or frozen your line of credit. In other words, no advance notice is required. This means your line could be reduced on a Monday, you could pay a bill on a Tuesday and then find out on a Wednesday that you did not actually have the credit which would allow you to write a check.
Of course, if you do have a check that bounces then you will naturally have to pay a bunch of fees and your credit score could be impacted. As it happens, a lower credit score can be used by lenders to justify reducing your line of credit.
Reasons
The Fed tells us lenders can reduce or freeze lines of credit for two reasons: a decline in the value of your home or a change in your financial circumstances. This means if the value of your home drops a dollar the lender has reasonable grounds blast your line of credit. As to changes in financial circumstances, they change every day. Notice that the “change” does not have to be negative, it merely has to be different.
Getting Back Your Line of Credit
The Fed explains that “your lender must reinstate your credit privileges when the conditions permitting the freeze or reduction no longer exist.” And who makes this determination? The lender?
And about those credit privileges? Does the Fed mean the line of credit for which you already paid? That’s not a privilege, that’s a purchase.
The Fed helpfully tells us “your lender can impose fees for reinstating your HELOC. Your lender may charge you fees to cover the costs for an appraisal and credit report when they consider your request for reinstating your HELOC. Your lender cannot, however, charge you a fee to reinstate your credit line once the condition that caused them to freeze or reduce your HELOC no longer exists.”
The bottom line is that if your lender can “justify” a credit line reduction or freeze then you’re stuck. Thank goodness the Fed exists to protect the public….
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