The fourth-largest bank by assets in the U.S. is no longer accepting home equity line of credit applications. Wells Fargo is one of the top home lenders in the U.S., but it’s shelving home equity loans because of the uncertainty surrounding COVID-19.
The bank said that it stopped accepting those types of applications on May 1.
Home equity lines of credit, or HELOCs, are risky to issue amid economic turmoil. Should a borrower default, the primary mortgage lender gets paid first in the event of a foreclosure. This means that it’s entirely possible that the lender for a HELOC loan would end up with nothing to recoup its losses.
Tom Goyda, a Wells Fargo spokesman, said: “Wells Fargo home lending will temporarily stop accepting applications for all new home equity lines of credit after April 30.” Goyda said the decision “reflects careful consideration of current market conditions and the uncertainty around the timing and scope of the anticipated economic recovery.”
Generally, banks have pulled back from housing loans, particularly where equity lines of credit are concerned, because the pandemic affects the creditworthiness of home borrowers as well as the value of homes. JP Morgan Chase announced that it was doing away with HELOCs and narrowing its focus on mortgage applications. JP Morgan said that it would look for higher FICO scores and require larger down payments for any new loans that it would issue.
Earlier this month, Wells Fargo took similar measures to avoid risky loans that included non-conforming mortgages. Many home loan consumers fall to lines of credit issued by mortgagers when times get tough. But, the banking industry is skeptical of issuing such loans at this time.
Wells Fargo said it would continue its suspension of HELOCs until “our analysis of market conditions indicate that it’s appropriate to resume the responsible extension of HELOCs to homeowners.”