Lenders Pinch Borrowing On Lines Of Credit; Homeowners Told Crisis Leaves Them Little Or No Equity

[Purveyor]

Tens of thousands of homeowners with home equity lines of credit are getting a rude surprise: They've been told by their lender that they no longer can take money out on their credit lines because sinking home prices have left them with little or no equity.

Among the lenders taking such action is Countrywide Financial Corp., which sent letters to 122,000 customers last week telling them they no longer could borrow against their credit lines. In some cases, the company says, the borrowers are "upside down" on their mortgages - the total debt on the home exceeds the property's market value.

Countrywide says it is using computer modeling that factors in changes in home prices to determine which customers would have their cash spigot shut off.

The cutoffs are coming as a shock to some.

"We didn't deserve this," Thaleia Georgiades, a real estate agent in El Dorado County, said two days after she and her husband, a builder, received a letter saying their Countrywide credit line had been frozen. "When you are self-employed, that's the money you count on to bridge the gap during tough times. And this is a particularly tough time in both the building and housing industries."

The move by Countrywide, the nation's largest mortgage company, is part of a pullback by lenders nationwide on home equity loans, which are often used to finance home improvements and consumer spending. Such loans, also known as second mortgages, were widely available until six months ago, when delinquencies and foreclosures began to soar. Now, with new evidence of sinking home values, many lenders are requiring that homeowners maintain a much larger percentage of home equity as a cushion against financial problems.

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