When you apply for a HELOC, you can either specify a certain amount, or just apply and see what the maximum CL a bank will offer you. For my HELOC lender, US Bank, a higher CL meant getting a better interest rate, so there was incentive to try to qualify for the highest CL possible. This is obviously not a good idea for anyone who has trouble keeping expenses in check, and likes to dip into his/her home equity to pay for cars and vacations.
My HELOC agreement, which I assume is pretty standard for any such loan, does have a clause that allows for decreases in the credit line:
"We may temporarily prohibit you from obtaining additional extensions of credit, or reduce your credit limit if: (1) The value of the dwelling securing this home equity line of credit decline significantly below its appraised value for purposes of this line..."
In the old days, I think it was possible to get HELOCs for up to 110-115% of the appraised value of a home. Last year, only US Bank would go up to 90%; everyone else would only go up to 85%. I wouldn't be surprised if the maximum LTV is even lower now.
