Anyone suffer from a HELOC "freeze" back during the GFC?

I am He

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I agree with the idea of using a HELOC instead of being fully liquid. We simultaneously opened one when we paid off our mortgage a few years ago. But I have read of the possibility of banks/CU's shutting down folks' lines of credit during economic melt downs as their liquidity goes dry during duress, too.

Curious if anyone had seen a letter like that from their lenders back in the 2009 timeframe? If so, that would point to keeping more cash, or staggering a CD Ladder, etc, around than we all tend to think we might need.
 
I can't answer your exact question but have a HELOC and the warning always comes up in HELOC threads. Personally, I am not worried. I reviewed my documents (but I'm no lawyer so maybe I missed something) and didn't see any clause that would allow them to pull it due to a reappraisal not involving changes to the property (and if they did I'd raise a stink to have them refund the origination fees with interest). I only requested about 40% of my purchase price and my LOA is now under 25% of CMV today so I really do not think I'm at risk as I see no likely scenario that CMV would drop by 75%. I do think I messed up in not getting a higher limit when I had the chance. With a 20 year draw the "value" of my LOC will be greatly reduced in the later years due to inflation. I doubt I'll use it but I like the piece of mind. If I were to use it it would likely be to float transactions so I could shift income realization into future years for tax management.

I guess that if the market/economy was in free fall and I was worried, I could draw from it before any recall came to have the cash handy... Always obvious with hindsight but leveraged purchases would have paid off nicely during the GFC and I'd be tempted. I did harvest losses back then though!
 
No. I know it happened in some cases, but it is kind of a Boogeyman.

And no reason not to get a standby HELOC.
 
I had a HELOC back during the Great Recession, and remember the news stories about some banks freezing them. I called my own bank to see if they had any plans to do that. They said no, but then I realized that, even if they were, they probably wouldn't tell me, so I ended up maxing out that sucker.

As it turned out, my bank never did freeze my HELOC. I ended up investing some of it, while the stock market was depressed, and finding other things to do with the rest of the funds.
 
I agree with the idea of using a HELOC instead of being fully liquid. We simultaneously opened one when we paid off our mortgage a few years ago. But I have read of the possibility of banks/CU's shutting down folks' lines of credit during economic melt downs as their liquidity goes dry during duress, too.

Curious if anyone had seen a letter like that from their lenders back in the 2009 timeframe? If so, that would point to keeping more cash, or staggering a CD Ladder, etc, around than we all tend to think we might need.
It happened to us naturally. Our loan was a 10 year HELOC which would convert to a 10 year home equity loan with payments over 10 years more if there was a balance. If there was no balance it would close. 2009 was the year it closed because we had nothing on it.

However, we were making really good money back then, and we were also spending money on our business using credit cards that we used as business cards. We were a DBA so the rules were a little bit more loosy goosy. And we acquired a couple more credit cards because credit was really easy. And right about the time when the stuff started to hit the fan, I realized that we had about 4 to 5 times the credit available than we actually earned.

And boy howdy did the banks start reeling it in and closing cards that we did not use. The account that we used for our business card ended up having a $50,000 limit which was half of what we earned (!) and we would’ve never used that much. And they took it down to 25,000, and a few months later pushed it back down to 15,000. We were using it for maybe $3000 a month, and that was supplies, gasoline and our $1250 a month health insurance payment.

I have also heard on Clark Howard show that some of the very large banks are screwing with their tiny customers. There are people saying that the really large banks are paying off peoples credit cards with their savings and checking accounts and closing the accounts and sending you checks because the banks don’t want to deal with charge offs. If they get a whiff that something is going to happen, they are protecting their butts. And apparently in the papers that you signed when you open up an account this is perfectly fine. So it’s starting to look like it might be better to spread some money around. And to not have a credit card with the bank you bank at.

How does that song go? The times they are a changing….
 
YES - it did happen to us. We were not harmed by it, but local media ran an article that said several banks had instituted a freeze on HELOCs.

It has also been noticeable that many banks have now restricted the max amount of cash advances on credit cards. Also, I found it interesting that when we went to buy a car in 2017, we were going to put the down payment on our credit card for the points (we had sufficient cash coming in to pay it off immediately). But the dealer's policy was they accepted a max of $5K from a credit card, no exceptions.
 
I worked for a bank back then that generated a lot of HELOC business and a HELOC used to be known as a second mortgage until that term got a bad reputation. But it's the same thing and a HELOC is subordinate to the primary mortgage.

The conventional wisdom in the industry was that people would do everything they could to avoid a default on their primary mortgage and lose their house.

As it developed, people realized they could never save their home due to layoffs and other problems so they essentially used their HELOC for all of their daily living expenses. Groceries, alcohol, you name it and it was being paid for by their HELOC debit card. The bank was happy because people were increasing their loan balances and making at least the minimum payments.

Then the primary mortgage went into default and it usually was held by another lender so we were secondary. House values plummeted and the bank got pennies on the dollar if even that when the bankruptcy sale of the home took place.

That was a tough lesson but one that everyone learned.
 
USAA froze my HELOC at some point during the GFC. 2008, maybe. If I had a balance, I could still pay it down under the terms, but I was not permitted to draw on it.

I called them about it and they said they did it to everyone in my state, it wasn't personal, they just wanted to reduce their exposure. I don't know why they chose my state; they may have done similarly in other states.

I didn't really care. I still had my job and had plenty of financial margin in terms of savings and assets. The HELOC was just a "might as well have it" kind of thing.

I refinanced the mortgage later and closed the USAA HELOC at that point. Never used it.
 
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