Have you had your home equity line reduced?

I was talking with an agent who mentioned that she was notified by her Bank that her home equity line had been reduced. So not understanding why, she stopped at the Bank to find she had not done anything wrong, she wasn't deliquent on the pay backs, but that because of the Chicago land decline they had opted to lower her line.

So I sat there, wondering why the Bank would have done that as well as wondering if this was going to be another trend to watch. The Banks seem to be acting more responsible to market conditions. There are people who are "upside" down or owe more in mortgages and 2nd mortgages or home equity lines of credits than their homes have values. At one time, while the market was robust, the Banks felt safe allowing 100% financing, or letting people getting a line of credit against their home equity to pay for colleges, vacations, higher interest loans, or cars.

Today, with foreclosure rates higher than ever imagined and home equity lines are now experiancing defaults as well. Those with high equity lines have seen their home value fall below their total indebtedness - so HELOC (Home Equity Lines of Credit) lenders are taking some drastic steps. Many are freezing lines of credit to the amount already drawn. Others are paring back the maximum value of the line, which is what my friend found out. A few are declaring default far earlier, as allowed by the loan agreement. An occasional missed payment, or a payment coupon returned "undeliverable" by the U.S Postal Service, generates faster loan curtailment.

According to the Chicago Tribune, 1.7% of all home equity lines of credit are experiancing poor back or late pays. This statistic is 500% more than previously experianced. Unlike a mortgage though, lines of credit limits can be altered by the Lender.

I have heard of some people who had "never used" home equity lines, that have written themselves checks just to keep the line open and "used".