You thought that your home equity line of credit was going to be there for you in case of an emergency, didn’t you?

For many home owners this spring has arrived with a surprise letter in the mail.  “Dear borrower, we decided to freeze your home equity line”. Major lenders have sent these type of letters out to tens of thousands of customers.  In some cases there are blanket freezes going on for certain parts of the country.

Given the drop in home prices and the tightening credit crunch many lenders have been reviewing their portfolios (read: your home loan).  And when they run automated home valuations they see that they’re on the hook for potential losses.
Can they really do this?

Yes they can.  In all equity lines agreements there is a standard clause that gives the lender to cancel or freeze the line in case of a drastic reduction of home value.  Since the line is also the 2nd lien on your house the lender usually doesn’t get much if the house goes to foreclosure.

So what is there to do?  If you think that the Automated Valuation that the lender used could be really wrong and your house hasn’t declined that much you can pay for an appraisal and send it in as proof.  This doesn’t guarantee that they will unfreeze it but it can be worth a shot if you like your current line and the terms.  Keep in mind an appraisal is around $300 though.

Usually the best option is to shop around for a new lender.  Keep in mind though that the lending criteria has tightened quite a bit.  Many major lenders don’t write home equity with a total loan-t0-value ratio of either 80 or 85% of the home’s value.  Basically 80-85% is the new 90-95% who used to be the criteria a year or two ago.

Your best bet?  Not the big nationals right now.  It’s going to be your local small bank or credit union.  Some credit unions are still writing home equity lines up to 95% of the home value (minus balance of the first mortgage).

With the current real estate slow down in progress it comes as no surprise that the home builders of America have their level of confidence down a bit.

On Monday the National Association of Home Builders released their latest report on their housing index. The builders that were surveyed had their lowest confidence level since February 1991 with a reading of 28.

Builders are asked about their perception of the future outlook for the coming six months as well as rate the current amount of traffic of prospective buyers. The answers are then used to calculate a seasonally adjusted index. Any number over 50 means more builders view sales conditions as good than poor.

Unfortunately it’s going to get worse before it gets better according to NAHB chief economist David Seiders:

“Home sales most likely will erode somewhat further in the months ahead and improvements in housing starts probably will not be recorded until early next year. As a result, we expect housing to exert a drag on economic growth during the balance of 2007.”

It looks like new construction home buyers will continue to see builders offering free upgrades to get them to sign the dotted line on the purchase agreement.

Good news for all experienced home sellers that are looking to sell their home by owner.

A new company called Iggys House is offering free MLS listings in 20 different states covering over 65% of the United States real estate market, Inman News reports. The service is available in California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Kentucky, Maryland, Massachusetts, Michigan, Minnesota, New York, North Carolina, Oregon, South Carolina, Tennessee, Texas, Virginia and Washington.

In a press release the company’s CEO Joseph Fox said: “By breaking open the MLS we are providing over $500 million worth of services for free to millions of home buyers each year”

“For the 1.1 million people who try to ‘sell by owner’, we provide incredible exposure to millions of buyers via the MLS. For the over 400,000 sellers who pay a fee to be MLS-listed, we now offer it for free” Fox continued.

If you’re not comfortable selling your home yourself, then Iggys House is not for you.

You would be the primary contact for your MLS listing and Iggys House does not offer sellers any personal help.

If you’re comfortable doing this then Iggys House will save you $250-400 that flat-fee MLS brokers normally charge to list your home.