Video: Homeowners see lines of credit freezing

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SEATTLE - With jobs lost and home values dropping, more people are leaning on their home equity lines of credit to get through tough times. But now that cash "life preserver" is being yanked away by more and more lenders.

But there are a few things you can do if it happens to you.

First thing to note is you have rights under the Truth in Lending Act.  The bad news is under certain circumstances lenders can freeze or pull those lines of credit.  And in the worst circumstances, they can demand that you pay the balance -all at once.

Martin Miller considers his home equity line of credit an emergency fund of sorts.

"Really, kind of a backup plan," he said.

He was shocked when his lender notified him his line was frozen, despite no late payments. Now he's fighting to get it back.  

"It is more than a little aggravating to have to go through this process," said Miller.

The U.S. Treasury Office of Thrift Supervision says it's happening more and more. Lenders are looking at their own risk and cutting back on authorized credit lines, which they can do if it's in the agreement. But first the lender must notify you in writing and meet one of three criteria.  Miller's lender cited the first.

"The value of that (property), that dwelling, as the rules describe it, has to significantly decline," said April Breslaw, director of consumer regulations.

The second criteria: concerns that you may no longer be able to pay the debt.

"That tends to happen when there's been material change in the borrower's circumstances, for example, if the borrower files bankruptcy," said Breslaw.

Third, if you do something to harm the collateral such as failing to get insurance. In worse cases, people can be told to pay their loans in full at once.

"They can do that, but only in very narrow circumstances," said Breslaw. "If the borrower committed fraud or if the borrower failed to repay the loan."

You can ask the lender to reconsider if you disagree with reasons for the action.  You can get a new home appraisal for instance.  You can also file a complaint under the Truth in Lending Act. 

The Department of Treasury is the place to start for help.