Q: I obtained a $60,000 home equity line of credit two years ago, but have never used it. Last week, I received a letter from my lender stating that the credit line is being reduced to only $10,000. The bank’s letter gave me no explanation for the reduction. What’s going on here? What can I do now?

A: Many homeowners across the U.S. are seeing their pre-established home equity lines of credit – commonly called HELOCs – unilaterally reduced or even closed by their lenders as banks try to stem their loan losses and cut their risk against slumping home values.

The problem is becoming so widespread that I’m devoting this entire column to answering some of the common questions that readers have asked during the past few weeks.

Which homeowners are most likely to get hit with a credit-line freeze?

Borrowers with recent late or missed monthly payments on their equity loans are prime candidates to have their lines reduced, canceled or – even worse – wind up in foreclosure.

Most equity lines take the form of a second mortgage, so the lender has the same right to foreclose as the bank that holds the first loan does.

Some contracts for home equity lines also allow the lender to freeze or cancel the account if the borrower falls behind on unrelated bills, such as credit cards or an automobile loan.

My credit score is almost perfect, and I have never missed a payment on any of my debts, but my lender is still planning to reduce my existing credit line by about 40 percent. Is this legal?

Some loan contracts allow the bank to eliminate or reduce a line even if the borrower’s payment record is perfect. Other agreements do not. You must re-read your original loan paperwork to get a specific answer to your question.

Your situation shows just how cautiously banks are now handling equity loans, even for borrowers with outstanding credit.

Just a year or two ago, before home prices turned soft, many banks were allowing customers to borrow up to 100 percent of the value of their home through a combination of a first mortgage and a HELOC.

Now, the limit for even the most creditworthy borrowers is generally 90 percent – and 60 percent or less in many areas where prices are expected to fall farther.

I established my credit line last November to pay for a major remodel and have been drawing down cash from the HELOC as payments to the contractor became due. The remodel isn’t even halfway done, but my bank has notified me that the line will be reduced in 30 days to an amount that will leave me far short of being able to pay the contractor’s future bills. What can I do?

You might be in a tough spot, unless you have enough money tucked away in your checking or savings account to pay for the rest of the remodeling work without using the credit line.

But, since your letter states that the line won’t be reduced until 30 days from now, consider taking out the cash you’ll need to finish the job in a lump sum from your HELOC today.

Taking all the needed money out from your credit line now would require you to start paying interest on the loan immediately, even though you might not have to pay another bill from your contractor for a few months.

Paying finance charges is not a great option, but it would probably be cheaper and easier than trying to obtain a brand-new HELOC in today’s market – and certainly better than stopping your remodeling project at the midway point.

Is there any way to fight a pending reduction or cancellation of a home equity line of credit?

Sometimes yes, and sometimes no. If you have already borrowed money on the credit line but have fallen behind on the payments, you have breached the terms of the contract.

Conversely, if the bank is simply planning to reduce or freeze your credit line because local home values have dropped, you can appeal the decision by providing information that shows that your house hasn’t been affected by the neighborhood-wide decline.

One of my readers told me that she got her credit line “unfrozen” by providing the bank with written estimates from two local real estate agents, both of which suggested that her well-maintained home would sell for much more than neighboring houses.

Most sales agents are willing to provide such pricing reports for free, hoping that they’ll get your listing when you eventually decide to sell your house.