One of the nation’s biggest names in mortgage lending has put the brakes on home equity lines of credit (HELOC) as the economic turmoil caused by COVID-19 is making the U.S. mortgage market look shaky.
Wells Fargo & Co. announced the global financial services company headquartered in San Francisco would no longer accept applications for home equity loans given the uncertainty fueled by the pandemic.
The temporary freeze commenced at the close of business on Thursday (April 30), the company said in an email.
“Wells Fargo Home Lending has temporarily stopped accepting applications for all new home equity lines of credit,” according to the statement provided by Thomas Goyda, a Wells Fargo spokesman. “The decision to temporarily suspend the origination of new HELOCs reflects careful consideration of current market conditions and the uncertainty around the timing and scope of the anticipated economic recovery."
Reuters reported that no jobs will be lost as a result of the HELOC suspension. Wells Fargo employees who worked on home equity loans will be reassigned to process purchase and refinance mortgage loans, where applications have increased as interest rates have dropped to record lows, the company said.
This is not the first time Wells Fargo has taken action to rein in HELOCs. Last month, the bank raised the minimum credit score for home equity loans to 720, up from 680. In addition, they suspended a variety of home loan products, including cash-out refinance loans, most HELOCs above $250,000 and non-conforming, higher-risk purchase loans.
Financial analysts say HELOCs are risky products for lenders in a down economy. If a home goes into foreclosure, the lender who made the primary mortgage is first in line to get paid. Lenders have been making moves to tighten credit quality in response to the coronavirus, which has threatened to plunge the global economy into a deep recession, Reuters reported.
On April 17, JPMorgan Chase & Co, the largest U.S. bank by assets, increased its mortgage borrowing standards and put a temporary hold on HELOC applications. Last month, the bank also tightened conditions for mortgages, such as requiring higher FICO scores and bigger down payments for new loans.
In March, PYMNTS reported that a shuttered economy and job losses are causing pandemonium in the mortgage industry as the prospect of foreclosures rise.
Also in March, PYMNTS reported on Noah, a FinTech startup that offers a novel approach to tapping home equity in this time of uncertainty. The San Francisco-based company provides upfront home equity cash in exchange for a portion of the home's future appreciation.
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