500k in Home Equity Yet Can't Refinance

by Bobby in Somers, NY

Ask Kate how to refinance a mortgage with $500,000 in home equity: Bobby has $500,00 of equity in his home and no 1st mortgage lien. He is sick and needs surgery. Yet the bank refuses to unfreeze or refinance his HELOC (home equity line of credit). You can imagine how this is less than conducive to getting well. How can Bobby make the bank recognize that they are holding his equity hostage?

Ask Kate: 500k in Home Equity Yet Can't Refinance My Mortgage

By Bobby in Somers, NY

Good Morning Kate,

I have a frozen HELOC with Bank of America (NIGHTMARE) but no first mortgage.

I have 500k in equity.

B of A re-modified my loan and did me the favor or making my payment 4 times what they were. I am now sick, out on disability, and need surgery. I told that to B of A and they have taken months of my time and still have not corrected the terms of the mortgage.

My wife's credit is okay but now we don't show the income that we used to have. I am able to afford the payments if they just make it a 30 year mortgage. I am having trouble finding a different provider to refinance with because of the low income.

This is both a nightmare and ridiculous that I can have all this equity and so far doesn't mean too much.

I need to refinance this and get far away from B of A have a normal existence and most importantly get healthy. I need to recover without this on my mind constantly.

Can you please help and offer any advice you have on correcting this situation.

Thank you, Bobby

P.S. Bank of America is a disaster to deal with.

Kate's Answer: 500k in Home Equity Yet Can't Refinance My Mortgage

Hi Bobby,

I need a moment to gnash my teeth as I reflect on B of A holding your equity hostage.

Ok, moving on. I can't calculate a loan-to-value because I don't know how much your home is worth. But I'll venture to say that $500,000 in equity is enough for the bank to be able to refinance or unfreeze your HELOC without incurring a huge risk. That being said, how can you convince them to open their pocketbook?

Understand Why the Bank Freezes Lines of Credit

Banks have always reserved the right to freeze home equity lines of credit. But it wasn't until about 2008 that this became a common practice.

When a bank freezes a HELOC, homeowners can no longer draw out funds but must continue to make the monthly house payments. There are three or four main triggers that can put a homeowner on the bank's radar for either a credit reduction or a total freeze.

1. They detect a lower credit rating from bills not being paid on time, either your mortgage payment or credit cards. Liens and judgments draw attention also.

2. The number of draws and the amount of each draw steadily increases. This tells the lender that your finances are in distress.

3. Property values are going down in your neck of the woods. Falling values equal reductions in equity which history has shown to be a precursor to foreclosure.

4. It's doubtful that a banks will admit to this but I suspect that they have their eyes and ears open for personal problems, such as areas where there are lay-offs. Self-employed borrowers will be higher on the list and if they catch wind of medical problems or even a divorce, a line of credit might be moved to the oh-oh column.

How to Thaw HELOC Freeze

Knowing what prompts the bank to freeze funds can help borrowers understand how to approach the bank to convince them of credit worthiness and reinstate the line of credit. In other words, you have to learn how to think like a bank to communicate with a bank.

If you can pinpoint which of the triggers caused the bank to freeze your line of credit, it will be important to let them know how the problem began and how you have since solved the difficulties.

For example, if one spouse has been laid off, a couple can show that the other spouse has gotten a job. Another example is to document a sale of a car to reduce monthly expenses. By being proactive, banks might be more willing to reconsider unfreezing the HELOC or refinancing the mortgage balance.

I think creating a budget to show how you can afford a payment based on a refinance goes a long ways in assuring an underwriter that they won't have your home come back as another foreclosure statistic.

Enlist Help From a HUD-Approved Housing Specialist

Have you tried calling a HUD-approved housing counselor? More than a pretty voice, they actually can get involved in your situation to the extent that it's possible for them to file a loan application on your behalf. Call them at 888-995-4673.

Home Affordable Unemployment Program (UP)

I'd be remiss if I did not point out that selling your home to get out from under the mortgage debt and free up your equity is another solution to consider.

But first, look into the Home Affordable Unemployment Program which, by the way, Bank of America participates in.
Best wishes for a healthy future,

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