Millions of American homeowners have home equity lines of credit — HELOCs — with their lenders. This is money that can be accessed in times of emergency or to buy something large. Many HELOCs allow borrowers to withdraw as much as $100,000. As the money is paid back, it can be borrowed again and again during the term of the loan.

So far so good, but here is the problem. There are a growing number of reports that lenders are suspending the right of borrowers to make additional withdrawals form existing lines of credit. The reason: As home values have declined lenders are worried about houses that have more debt than value.

The good news is that I have not seen a single report where a reverse mortgage line of credit insured by HUD has been suspended. Unless someone knows differently, the FHA/HECM (Home Equity Conversion Mortgage) program seems to be working as planned.

You can see the issue here. Imagine having a regular line of credit with a $50,000 balance and counting on that money in an emergency. Imagine that you paid money up-front for the right to have that access to your equity.

Now imagine that your lender then suspends your right to access the money remaining on your line of credit because the value of your home has fallen or you were a few days late with a payment. The impact would be devastating.

If HUD is keeping its word and allowing full access to reverse mortgage lines-of-credit then it has good reason to get credit for doing something right.

This entry was posted on Sunday, March 30th, 2008 at 5:27 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.