Even with signs that the economy and the housing industry are stabilizing, lenders continue to shrink and freeze home-equity-lines-of-credit.  While this can create a significant inconvenience and frustration for consumers, the practice is completely legal and lenders are only required to send notification three days after the change to a homeowner’s HELOC.  The Federal Reserve recently released some tips for dealing with a reduction or freeze to your line of credit.

The first step is to read the notice your lender sent and try to understand the reasons for the change.  The two most common reasons for reductions or freezes are for a decline in your home’s value, or a change in your financial situation.  If you believe that the lender’s reasoning is incorrect, then give your lender a call, and be ready to document your reasoning.  If you have made home improvements since you received the HELOC, explain to your lender that your home is worth more.  If your credit has deteriorated, the lender must reinstate your credit when your situation improves without charge.  However, in other situations, a lender may charge you to reinstate your credit.