May 5, 2009 7:10 pm US/Eastern
Beware: Banks Are Canceling Home Equity Loans
WESTWOOD, N.J. (CBS) ―
As if things couldn't get any tougher for homeowners, many are discovering that their banks are canceling their home equity loans and leaving them in the red.
Joanne LoBuono bought her Westwood home as a fixer-upper, and for the past decade, that's what she's been doing: paying for the repairs with a home equity line of credit. She met with a banker last month to check on her account.
"She went to look at my line of credit and couldn't open it. She kept saying, 'Gee, this is strange, it's blocked,'" she tells CBS 2.
That's because the bank took away her line of credit. The value of Joanne's home fell so much, it wasn't worth enough to secure the loan, so the bank cut her off. Since the mortgage meltdown, banks are re-evaluating their home loans. In Joanne's case, it came as a complete surprise.
"You just do this without informing us?" she asks.
Diane Casey-Landry of The American Bankers Association said it's not supposed to work that way.
"They are sending out letters indicating to people that they have in fact reduced the amount they can borrow," said Casey-Landry.
But LoBuono said the letter didn't exactly come in a timely fashion.
"I did get their letter. Absolutely. Seven days after they had closed off my line of credit," she said
It's happening more and more.
One option is to appeal the bank's decision, but that can take time and money. You can also negotiate. You might be able to combine your home loans at a better rate than you started with.
For now, Joanne has no loan to fall back on and is stretching her paycheck to make ends meet. And she's looking for a new bank. The last one lost her trust, and her business.
(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)
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