Servicing Corner: Is a LOC Guaranteed to Be Available For Borrowers?

Servicing Corner: Is a LOC Guaranteed to Be Available For Borrowers?

Question: Is it okay to tell your clients that the Line of Credit is guaranteed and will always be available to them?
Answer: No, the line of credit is not guaranteed or always available to borrowers. Here’s why: While the line of credit is not reduced or frozen if the home value decreases, the funds from the line of credit may be frozen if:

  • The borrower hasn’t paid property charges, such as taxes, insurance or HOA dues/assessments. Funds would be taken from the LOC to cover these required expenses;
  • Required repairs are not completed;
  • The borrower is no longer living in the home as a primary residence, either because they moved or died.

In addition, line of credit funds are not available to non-borrowing spouses, only the borrower of record on the loan.