Money v/s Money Substitutes

From the NC Times: Lenders freeze equity lines in response to tumbling property values.

Several banks issued statements this week saying they were temporarily suspending withdrawals from open home equity lines out of concern that borrowers could owe more than the house is worth.

Historic declines in property values have stripped many local homeowners of their safety nets as lenders freeze lines of credit ---- even on people who are current on their mortgage payments.

Those lines are drying up as Countrywide Financial announced Thursday that it has cut off 122,000 borrowers from pulling any more equity out of their homes. Wells Fargo, Washington Mutual and JPMorgan Chase released statements Friday saying they have also started halting equity lines because of tumbling home values but declined to provide numbers of suspended equity lines.

The Home ATM™ is closed. Thank you, come again!

"It's an emotional hardship," said Patti Lien of Menifee. "We kept our credit good. We've done everything right, and this is what we get because Countrywide made all these crappy loans."

The Home ATM™ is closed. Thank you, come again!

"It really wreaked havoc for me," said Dan Holbrook, a Fallbrook homeowner. Working in the real estate industry, he is often paid in lump sums.

At the end of the year, Holbrook paid off his equity line with a $50,000 payment. Four days later, Bank of America froze his equity line, he said.

"I'm scrambling right now," he said. "It has created a tremendous amount of stress because that was money to live on for me."

The Home ATM™ is closed. Thank you, come again!

Holbrook, a real estate consultant, said most people view such loans as emergency-only money. That is how he viewed it until the housing market slowed, he said.

"A lot of people figured these equity lines were safety nets," he said. "The problem is many of us are on a high-wire act right now. And you think the net is there, and you fall and it's not."

The Home ATM™ is closed. Thank you, come again!

Lien said she knew of the language, but thought it only applied to homeowners who encountered credit problems and did not know an external factor such as declining property values could put a stop to the loan.

"It's a hardship. It's money that we thought was there and it's not," she said. "We didn't go on a cruise, we didn't buy new cars but we're still suffering because of others."

The Home ATM™ is closed. Thank you, come again!