This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

No More Line of Credit for You!

Todd Appleman never envisioned washing his dishes in the bathtub when he opened a $64,000 home-equity line of credit to renovate his kitchen.

But just when he was about to advance a first payment to his contractors -- who had just ripped out his cabinets and appliances -- Appleman says his lender, Bank of America (BAC), froze the line without notice to him.

"People don't take out a line of equity with the intention of not ever using it. And wouldn't it be courteous to give your customer a call to tell me about this?" he says.

The nation's plummeting real-estate market has prompted many lenders, including Countrywide (CFC), Washington Mutual (WM) and Bank of America, to cancel or reduce many borrowers' home-equity lines of credit. The action is typically permitted by loan agreements, but it's one that's surprising many homeowners.

"Most customers don't realize under what terms and conditions the lender can close the account," says Chris Roberts, president of First Palmetto Mortgage in Greenville, S.C. "They are deep and wide -- and they don't come into play during an appreciating market when values are rising."

Manda Hunt of Atlanta says an exemplary payment and credit history didn't influence her lender's decision. Hunt opened a home-equity line when she purchased a one-bedroom condominium in Atlanta for $173,000 in 2002. She says she paid her mortgage via automatic checking account deductions and made extra principal payments. A recent letter she received from Countrywide described her as a "great customer" but explained that she could no longer draw from her home-equity line due to declining real estate values, she says.

"I was freaking out," says Hunt, who describes herself as being "anal" about paying bills on time and maintaining a high credit score. "I wasn't planning on accessing the line but I don't want to hear that I can't." Countrywide now values Hunt's condominium in the mid-$150,000 range -- nearly $20,000 under her purchase price, she says.

A Countrywide spokeswoman says the lender is reviewing its portfolio's home-equity lines of credit "in keeping with its sound risk-management and responsible-lending practices," and that lower property values may lead to the suspension of existing accounts.

But Appleman, the homeowner who temporarily suspended his kitchen renovation, says property values in the Hollywood Hills section of Los Angeles, where he resides, have remained steady, and in some cases, increased, during the slump. He also says he's been a long-term customer with the bank and has excellent credit.

"I've always paid my mortgage on time. It's a very bad case that shouldn't happen to anyone who deals with a solid financial institution," Appleman says.

Terry Francisco, a spokesman for Bank of America, wouldn't discuss the bank's appraisal process, citing it as "proprietary." But he says customers who think the appraisal is erroneous may discuss their concerns with the bank. Bank of America is presently examining equity lines in areas of the country where home values have declined significantly, he says. It is also reducing lines of credit for borrowers whose home values haven't declined significantly, but who haven't accessed the line, he says.

"It's further proof of the absolute, complete absurdity of our current mortgage market," says Ira Rheingold, executive director of the National Association of Consumer Advocates, a Washington, D.C.-based advocacy network dedicated to protecting consumers from unfair and deceptive business practices. "When it comes to helping consumers in foreclosure, they say they can't use an across-the-board fix, yet this is what they do with HELOCs."

Neither Countrywide nor Bank of America would disclose the total number of home-equity loans that have been frozen or reduced.

1 of 2

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,778.15 +421.28 2.43%
S&P 500 2,061.23 +48.34 2.40%
NASDAQ 4,748.3960 +104.0840 2.24%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs