Wells Fargo is temporarily halting its home equity line of credit offering.
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“We have decided to make temporary changes to the products we offer after carefully considering current market conditions and economic uncertainty due to COVID-19,” states Wells Fargo on its website, “We will process all applications we have received prior to May 1. We’re happy to review your needs and see if another option could meet your needs. If you have an application in process, please contact your home mortgage consultant.”
Wells Fargo will begin accepting new home equity line of credit applications when the economic situation and housing market conditions improve.
“Wells Fargo Home Lending will temporarily stop accepting applications for all new home equity lines of credit after April 30,” said Wells Fargo spokesman Tom Goyda in a statement reported on HousingWire. “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.”
Goyda added that the decision to temporarily halt applications for new home equity lines of credit does not affect the bank’s existing home equity customers. Borrowers with existing HELOCs will be able to draw funds on those lines of credit.
According to Chase’s website, “We’ve decided to make some temporary product changes because of economic uncertainty created by COVID-19. This change protects both you and the bank.”
Chase will process all HELOC applications it has received through April 16, and expects to resume accepting new applications once housing market conditions improve. The website states, “We’re happy to work with you to see if another product, such as a cash-out refinance, could meet your needs.”
A cash-out refinance replaces your current home loan with a new mortgage that’s higher than your outstanding loan balance, according to Bankrate, explaining: “You withdraw the difference between the two mortgages in cash and put the money toward home remodeling, consolidating high-interest debt or other financial goals.”
One effect of the rapid increase in home prices from 2000 to 2006 was the increased use of home equity lines of credit as a method for homeowners to extract equity from their properties, states CoreLogic, a global property data and analytics provider, in a report, adding that, “The decline in home prices after 2007 and the potential for rising interest rates resulted in a fear that a substantial number of HELOC borrowers would default on the loans upon reaching the end of their draw period.”
The average homeowner gained $7,300 in home equity between the fourth quarter of 2018 and the fourth quarter of 2019, according to CoreLogic. States with the largest gains included Idaho, where homeowners gained an average of $18,700; Wyoming, where homeowners gained an average of $17,900; and Arizona, where homeowners gained an average of $14,800.
From the third quarter of 2019 to the fourth quarter of 2019, the total number of mortgaged homes in negative equity decreased by 4.8% to 1.9 million homes or 3.5% of all mortgaged properties. The number of mortgaged properties in negative equity during the fourth quarter of 2019 fell by 15%, or 330,000 homes, compared to the fourth quarter of 2018, when 2.2 million homes, or 4.2% of all mortgaged properties, were in negative equity.
“The CoreLogic Home Price Index recorded a quickening of home price gains during the fourth quarter of 2019, helping to boost home equity wealth,” said Frank Nothaft, chief economist for CoreLogic. “The average family with a mortgage had a $7,300 gain in home equity during the past year, and a total of $177,000 in home equity wealth.”
Negative equity, often referred to as being underwater or upside down, applies to borrowers who owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in a home’s value, an increase in mortgage debt or both.