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

[I am He]

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.

 

[FLSUnFIRE]

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!

 

[Montecfo]

No. I know it happened in some cases, but it is kind of a Boogeyman.

And no reason not to get a standby HELOC.

 

[Andre1969]

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.