If you are one of the homeowners who are trying to tap into your home equity line of credit (or HELOC), you might be in for a big surprise. Countrywide and other lenders recently announced that those homeowners can no longer borrow against their credit lines as the companies tighten credit standards. The moves to rescind credit lines are part of a pullback by lenders nationwide on home equity loans, which are often used to finance home improvements projects and consumer spending. Such loans, also known as second mortgages, were widely available until a few months ago, when delinquencies and foreclosures began to soar.

Countrywide Financial Corp. sent 122,000 letters to customers last week telling them they could no longer borrow against their credit lines. In some cases, according to the company, the borrowers are now “upside down” — the total mortgages exceeds the market value of the homes.

With the housing prices dropping like crazy, a lot of lenders are requiring that homeowners maintain a much larger percentage of equity in their homes as a cushion against financial catastrophes.

So gone are the instant ATMs those homeowners enjoyed. Gone are the wild spending by a lot of homeowners. And gone are the robust economy that was driven by the consumer spending during the housing boom!!

Source: Los Angeles Times