MANY homeowners who have taken out home equity lines of credit have learned in recent months that these loans are not as useful as they initially seemed.
Lenders are struggling to minimize risk, and because they are especially at risk to lose money on residential real estate loans, they are cutting back on homeowners’ credit lines or freezing them altogether.
Please read: Bailout Winners and Losers
Many people who took out home equity credit lines of $100,000 on their home and used only, say, $20,000 have received letters informing them they can no longer borrow additional money, just as their stock portfolios are dwindling. The banks’ reasoning, typically, is that area property values are dropping, so the equity does not actually exist.
To challenge the bank’s valuation of a home, a homeowner has little recourse but to spend his or her own money to order an appraisal — a potentially costly and futile approach.
Bend over, Amurkn homeowner!
But a new countermeasure is emerging: take out the money before the bank puts it out of reach. In this strategy, borrowers draw the maximum amount even if they don’t need it, then place the cash in a liquid, and safe, investment vehicle.
Good for them (is there such a thing?)!!!!
Those who withdraw their home equity should consider putting the cash into a certificate of deposit, a savings account or a money-market account. These financial instruments are typically insured by the Federal Deposit Insurance Corporation. Borrowers can withdraw the money on short notice and pay no penalties in the case of savings or money market accounts, or marginal penalties for early withdrawals.
Short-term liquidity is a key advantage, as borrowers may well be using their credit lines for college tuition bills or as emergency funds if they lose a job.
Yeah, hi.
There are some risks for borrowers who follow this approach. First, if the value of a home drops significantly and the borrowers have spent the cash from their equity line, they can end up owing more money than their property is worth.
Like this guy?
The prospect of easy money is also a temptation that some borrowers will find difficult to resist. --more--"
Tell it to the CONGRESS and the CORPORATE LOOTERS!
