The significance of this announcement (and why I am assuming OP posted it), is not to let us know that we can't get home equity lines, but instead showing it as a signal that one of the largest mortgage providers in the world is worried about future home/land values.<p>Remember that Wells Fargo is the 26th largest corporation in the world. They have plenty of money. They have lots of smart people (insert your "stupid banker" joke here) working for them. They have lots of highly-paid analysts that make these decisions. These are not spur-of-the-moment, panic-induced decisions. Wells Fargo also has a lot of experience with home values and mortgages, by being the largest Home Mortgage provider in the US (by dollar value), with $126B in home loans [1].<p>Long story short, they are experienced in home values and mortgages and they have a lot riding on them. They have smart people that have looked at the current and future state of home values and decided, that despite the potential revenue that could be generated from Home Equity Lines, there is too much risk in offering this product and they will stop offering it until further notice.<p>That's a big deal. Wells Fargo is leaving lots of money on the table by NOT offering these. But their analysts have decided that it is too risky. That to me, means that there is a lot of concern over future home value. We have been living in a housing bubble for a while. We all know it, Wells Fargo knew it, and this could be a signal that at least Wells Fargo is concerned that the bubble might be popping.<p>(I personally hate Wells Fargo, but did have a Home Mortgage through them until about 3 months ago when I sold my last home. I wouldn't borrow from them again however. This isn't a fanboy piece, but it is important to acknowledge their strengths when looking at signals like this).<p>[1] - <a href="https://www.housingwire.com/articles/41539-here-are-the-top-10-lenders-dominating-the-mortgage-market/" rel="nofollow">https://www.housingwire.com/articles/41539-here-are-the-top-...</a>
It's also the fun part about credit.<p>When you don't need it, it is real easy to get.<p>When you need it, it is real hard to get.<p>This is why $1 in the bank is worth so much more than $1 in credit that you can maybe draw on. Especially lines of credit that can be called in.
This is not unexpected. JPMC halted home equity origination a week ago. This debt is kept on a bank’s books (and not government backed like mortgages), they’re limiting exposure during macroeconomic distress.<p>Do a cash out refi if you need to tap your equity.
there are alternatives to believing that the value of the entire housing market is going to drop:<p>1. your last N years of work/credit history are currently less predictive about future income/repayment ability than banks would like. regardless of who you are.<p>2. even if the same amount of money continues to chase the housing market, there is (as some other comments mention) at least a little bit of a reason to believe that the money might want to move to different geographic areas. if you don't know what that change will look like, your ability to predict future home values is reduced.
Sure there is market uncertainty, but that changes qualification criteria not the willingness to lend. I wonder if this announcement has more to do with the PPP fiasco in the banking world. I applied for an SBA loan the day before the PPP was released and my bank said basically "sorry, we're doing nothing but PPP for the next 5 weeks".
My parents took out a home equity loan in 2013 and are still buried by it, any recommendations here for how they can best service or refinance the loan?
How much of this is market forces in general, and how much of it is market forces combined with Wells Fargo's balance sheet limits that it has because of past misdeeds.
would you loan money into this kind of uncertainty?
i think this is a very rational decision for a bank to take.<p>(hate for the banks aside, i would do the same thing..)
Well, that's unfortunate but understandable. It seems like the Fed should be buying up home equity loans, to offload the risk?<p>A universal basic income would be best, but short of that, more consumer loans would be useful. And better if they only need to be paid back when you're making money.
This follows a similar move by JP Morgan Chase:<p>> Due to the economic uncertainty created by COVID-19, we’re temporarily not accepting applications for new home equity lines of credit (HELOC). This will protect both you and the bank.<p><a href="https://www.chase.com/content/chase-ux/en/personal/home-equity/update" rel="nofollow">https://www.chase.com/content/chase-ux/en/personal/home-equi...</a><p>From Wikipedia:<p>> A HELOC differs from a conventional home equity loan in that the borrower is not advanced the entire sum up front, but uses a line of credit to borrow sums that total no more than the credit limit, similar to a credit card. HELOC funds can be borrowed during the "draw period" (typically 5 to 25 years). ...<p><a href="https://en.wikipedia.org/wiki/Home_equity_line_of_credit" rel="nofollow">https://en.wikipedia.org/wiki/Home_equity_line_of_credit</a><p>This has two main implications:<p>1. Two major banks are now worried about consumer solvency (and/or real estate prices) to the degree that they're forgoing HELOC origination profits across the board. An alternative response could have been to simply raise interest rates on these loans. The fact that the loans were suspended suggests a lot more afoot than meets the eye. Those suggesting to "cash-out refi instead" may be surprised to find in the coming weeks that these loans have also been terminated, or saddled with terms that make them unattractive.<p>2. Consumers who were planning to tap home equity to pay for monthly expenses will not be able to do so.<p>This could spell a lot of trouble moving forward. US consumers view their homes as a kind of ATM, dispensing dollars on demand through HELOCs. That money can be used for literally anything.<p>Without an easy source of credit to tap, where will the American consumer turn? In increasing order of existential risk:<p>1. Sale of big-ticket property (houses, boats, cars, cutting short college degrees).<p>2. Credit cards<p>3. Payday loans<p>4. Default on other loans<p>5. Bankruptcy protection<p>These options magnify bad decisions made in the past. Selling big-ticket items drives down the market price of the underlying assets, which leads to more distress, and so on.<p>Credit cards and payday loans charge indefensibly-high interest rates that can easily lead consumers further down the ladder of insolvency.<p>Bankruptcy filings destroy money by wiping loans off the balance sheets of banks. Banks respond by tightening lending standards, which drives the cycle further down.<p>How will employers likely respond?<p>1. Hiring freezes<p>2. Pay cuts (nominal or real, through increased employee contributions to health care plans)<p>3. Bankruptcy<p>All of these things, from stress on consumers to pressure on businesses, are deflationary. Expect the value of cash to increase compared to the value of stuff.<p>How to approach what lies ahead? If you're in debt, get out now. Then stay out. Deflation wipes out debtors as they're forced to pay back loans with ever-appreciating dollars.
Interesting. This kind of resembles the crisis of 2008, when banks have produced too many subprime loans. It looks like WF tries to get them off their books while it still can. Or at least not make new ones.