Home Equity Loans have always been great mortgage options to tap into your equity. Unfortunately, due to tighter credit standards and declining home values, accessing the equity in your home is no longer a simple phone call away. Here in California, homeowners who already have equity lines of credit have trouble simply accessing these funds because of the certain lenders freezing their loans.

Last month, I mentioned these Frozen HELOCs a bit and some readers also shared their personal encounters with these disappearing funds. But today I wanted to highlight a ripple effect that might make you reconsider your financial plans.

An article by the Herald Tribune reported that the second quarter statistics for auto-loan delinquencies jumped nearly 11.5 percent as reported by the credit reporting agency TransUnion. Art Spinnella, president of the automotive research marketing company CNW, also mentioned that one third of new vehicle sales in California were made with the use of home equity lines of credit.  In addition, he continued on by saying that new sales would continue to suffer because of the limited home equity lines in certain declining states.

Rethinking Your Moves
Home Equity Loans have been popular sources for home improvements, college tuitions, and other significant financial moves.  But before you make any plans to tap into your home equity, you may want to seriously reconsider this option.  Aside from inflated home values, one downside of this recent housing craze was the ATM-syndrome caused by rising equity.  People saw their growing equity as their secondary checking account and were spending as if it would keep on growing.

Now, values are down and homeowners have little to no equity to turn to. But is it that terrible? I’m not saying dropping home values should be welcomed, but maybe this is a chance to correct the flawed financial habits we’ve picked up over the years. Paying for college tuitions and consolidating high interest debt I can understand; but mortgaging your house to finance your new car or high priced ticket items may not be the best move.

So while other industries may be suffering because of tightening credit opportunities, perhaps this is just what we needed to return back to the work-hard-and-save mindset; instead of the borrow-and-spend attitude that got us here in the first place.

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