I don't understand the outrage here. The over-riding of a home equity loan is that you have some equity in your home. If house prices fall, wiping out home equity,then on can hardly be surprised that banks stop lending HELOCs.

At the risk of making a tangential point, should HELOCs be used to finance pre-school feews, as the woman in this article from the WAPO seems to be doing?

Homeowners Losing Equity Lines As House Values Fall, Some Banks Withdraw Credit

Nancy Corazzi was told by her lender, USAA Federal Savings Bank, that her equity line of credit was suspended because her Howard County home had dropped in value. In one brief phone call, Nancy Corazzi's lender yanked away what was left of the $95,000 home equity line of credit that she and her husband took out five months ago.

The lender informed her that her Howard County home had plummeted in value and the company did not want the risk that she would owe more than the house was worth. "I got off the phone and I was shaking," said Corazzi, who was using the money to pay preschool tuition for her twins ."I was near tears. We needed this credit line to get us through some tough times."

Several of the nation's largest lenders, along with smaller ones, are shutting off access to home equity lines in areas where home values are declining. It's an unusually aggressive move as the industry grapples with fallout from the mortgage crisis that began unfolding last year.