Can a lender lower the amount being financed on the day of closing (on a home equity loan) that was agreed to on the truth in lending statement?

The lender states that the underwriter decided that the area that we live in is 'declining in value'. The appraiser says that it is stable. The lender never sent the paperwork, as requested, prior to closing. The lowered finaced amount was never disclosed until viewing the paperwork at closing. Switch and bait? Deceptive? Is this allowed? We did not sign and have contacted the lender... and are in limbo... 

A lender can certainly lower the amount they will let you borrow, as it is up to their approval to obtain the loan. At the same time, if you applied for one amount, and were approved for a lower amount they are required to issue a change in terms and a new commitment letter, as well as a TIL, etc. It is very likely that the lender actually cut the loan amount prior to closing, but you didn't see anything until the closing because they did not properly redisclose. When you speak with the lender I would question not why they cut the value, as they have the right to lower the loan amount offered (just like you have the right to not accept the loan), I would however question why this change was never redisclosed to you.

AC

Did you use a lender or a broker?

We are using a credit union. We refinanced our home and were supposed to close on the refi and home equity loan at the same time. When closing time came around we were told to go ahead and close and re-apply for the home equity loan because they didn't get it put together in time. When we re-applied, they used all the same info including the appraisal. The 1st page of the appraisal shows that we are in a declining market area - even though it also states that only the higher priced homes are being affected. No one mentioned that the loan amount would be based on 85% of appraised value due to declining market value. Closing docs were not received until closing day at 3:30pm - with closing at 5pm... hence, no time to read them. At closing, it was never mentioned until viewing of the docs.

Had we been told this to begin with, we would have gone with another lender that offered much lower closing costs and the lower loan to value ratio on our home equity loan. We chose NFCU because they told us that we qualified for the 90% loan. Now we can't go with another leneder for the home equity loan because it has to be taken out with the same lender as the 1st mortgage. A catch-22 scenario? Do we have any recourse here?

It sounds like the LO did not fully understand the internal guidelines.  I would try to speak with a manager.   The credit union usually holds onto the mortgage so they might be able to make an exception. 

You can obtain a second mortgage even if the first is with a different lender. There is no rule anywhere stating that you cannot do this. What may be more of an issue is finding a lender who will do a HELOC to 90%. In my area there are 2 local banks, but none of the nationals, and brokers to my knowledge don't have an outlet for a 90% 2nd either. I would follow what Melvin says and start talking your way up the chain. Credit Unions are community entities, technically as someone with an account at the CU you are an 'owner' (they use the term member, but CU's are chartered to be owned by their account holders). I would assume if you can get high enough up the ladder someone will do the right thing on this, and allow you to close at 90%. Good luck,

AC