I have a confession to make: I've never had an emergency fund.

I don't think that I'm immune to financial woes; I just figured I'd tap into my home equity line of credit at a relatively low interest rate, should I run into a financial disaster. Better to keep the cash earning a higher rate of return than stuck in a low-rate bank account, I figured.

That is, until my line of credit disappeared. Citigroup (NYSE:C) sent me a nice letter telling me that my line had been frozen because the bank believed that the value of my house had fallen. Yes, Fools, house prices really do go down-- and without that collateral, I have no line of credit.

I'd guess Citi isn't the only bank sending out these kinds of letters. Given the losses we've seen in recent months, it's not surprising that banks would want to limit the potential for homeowners to do further damage.


Provision for Loan Losses in First Half of 2008

Increase Over Same Period in 2007

Washington Mutual (NYSE:WM)

$9.4 billion


U.S. Bancorp (NYSE:USB)

$1.1 billion


PNC Financial (NYSE:PNC)

$337 million


Regions Financial (NYSE:RF)

$490 million


KeyCorp (NYSE:KEY)

$834 million



$553 million


Source: Capital IQ, a division of Standard & Poor's.

Fortunately for me, the letter didn't come during the middle of a personal financial crisis. Hopefully, I have time to get that three to six months of expenses stocked away somewhere safe.

I've never used the unrealized gains in my house as a bank account for frivolous spending. But that letter made me realize that I can't count on those unrealized gains in an emergency, either.

More Foolishness on mortgages:

U.S. Bancorp and BB&T are Motley Fool Income Investor recommendations. To see how dividend-paying stocks can offer both secure income and the opportunity for growth, take a free look at this newsletter service with a 30-day free trial.

Fool contributor Brian Orelli didn't buy his house at the top of the market, but he did open his line of credit pretty close to the peak. He doesn't own shares of any company mentioned in this article. The Fool's disclosure policy would never abandon you.