Sunday, September 7, 2008

Real estate editor Maryann Haggerty and columnist Elizabeth Razzi respond to a question adapted from a recent online chat.

Washington: I have about $20,000 remaining on a $25,000 home-equity line of credit, which I am planning to pay off within the next six months. Is it likely the bank will close this line of credit soon after I pay it off?

Elizabeth Razzi: Unfortunately, even prudent borrowers can't count on a home-equity line of credit being there when needed. Banks have been shutting down HELOCs, or reducing the credit available, citing declines in home values. It's so pervasive that federal regulators recently reminded lenders that consumer protection laws are still in effect. For example, banks need to provide written notice within three days of their move to shrink the amount of credit available.

Maryann Haggerty: The main reason the lenders cite for freezing credit lines is that the dramatically lower home values have, according to their calculations, wiped out equity. If your lender decides that is the case with your house, I doubt it would wait until you repay the loan to freeze your line.

E.R .: If your bank does limit your credit, you can appeal the decision, but expect to pay a few hundred dollars for a home appraisal to prove your point.

The next Real Estate Live chat will be 1 p.m. Sept. 19.