Citibank And Freezing HELOCs: A First Hand Account

I've heard a lot anecdotally about home equity lines being frozen for no apparent reason, so when I got this email from Charles in Chicago, I just had to post it.

Citibank (owned by Citigroup )actually lowered his line of credit to $116 below his current balance. He also notes that he's had clients whose home equity checks have bounced because Citibank froze the line of credit before actually notifying the borrower. Take a read:

In their latest move to "Protect homeowners from borrowing beyond the value of their homes" Citibank has begun "reducing" the HELOC limits of existing customers. I'm a mortgage broker out of Chicago. A few weeks ago I got a few calls from clients who had their credit limits "reduced." I looked into most of their files, and all had lines to 100% combined loan to value. At the time I thought it logical that Citibank should reduce their limits considering values are falling in many parts of the county. I assumed Citibank had used a fairly sophisticated model and determined which borrowers needed to be reduced.

Today, I received a letter in the mail from Citbank notifying me that my HELOC credit limit had been "reduced" due to "Their determination that home values in my area, including my house, have significantly declined". I bought my house in 2005 for 835,000. I have a 473,000 first mortgage on it. I've spent almost 200,000 rehabing it since I bought it. I took out a HELOC with Citibank with a 151,000 credit limit. My current balance on that line is 33,616. As far as I can tell even if you don't count a penny of my improvements, and you consider a 10% price drop from the purchase price, with both loans at limit, I would still be less than 83% loan to value. I would like to know how Citibank is determining my home's value.

Questions? Comments?