It might come as a surprise to many homeowners when the letter arrives. They have good credit and a high FICO score, only to learn that their lender has suspended their Home Equity Line of Credit (HELOC). Even if the homeowner has no balance on their HELOC, many lenders have taken a broad-brush approach by looking at the overall market and not the individual owner's credit rating. This might affect the homeowners current or future plans to remodel the home, take a vacation or send a child to college. Lenders are concerned that as real estate prices fall in certain markets, many owners have a combination of the 1^st mortgage and the HELOC which now exceed the value of the property. While a lender would always have the right to suspend a HELOC, many lenders have looked at a city, a zip code, a county or even an entire state, and have sent letters to owners telling them not to use the checks or debit cards that were provided when the HELOC was issued.

Lenders such as Bank of America has looked at zip codes through several market value programs and has sent letters to those owners who are in a market that has declined more than 10%. In addition, the guidelines for obtaining a new HELOC have changed. In prior times, most lenders allowed a 1^st loan and a HELOC to reach 100% of the value of the property. When the owner obtains a 90% 1^st loan, and a HELOC for 10% of the value, that would total 100% of the value. Now, many lenders will only allow HELOC's and the 1^st loan not to exceed 80% of value. The lender wants the 20% “cushion” in case values of property fall.

The homeowner really has no recourse, as the lender includes language for suspension in the loan paperwork a seller signed.

So, be sure to read all letters and other communications from your lender, in case they send you such a letter.