Under federal law, what constitutes a significant decline will vary according to individual circumstances. The general rule of thumb is that if the value of the home declines so that the initial difference between the credit limit and the available equity when the HELOC was approved is reduced by 50 percent, the decline is "significant."
Here is an example:
Assume the home has an appraised value of: $100,000
First mortgage on the property in the amount of: $50,000
HELOC on the property in the amount of: $30,000
The difference between the appraised value and both loans when the HELOC was approved is: $20,000
50% of the difference is: $20,000 x 0.5 = $10,000
For this example, a decline of $10,000 in the appraised value of the property from $100,000 to $90,000 would be considered significant and the credit union could prohibit further advances or reduce the credit limit. Your credit union may need to evaluate smaller declines in the property value based on the specific circumstances to determine whether the decline is "significant."