WSJ: Wells Fargo Restructures HELOC Loan Offering

Wells Fargo (NYSE: WFC) will no longer offer customers interest-only versions of its home-equity line of credit, pushing for what a company executive calls “a more responsible product,” according to a report by The Wall Street Journal. 

“The product should be designed to protect the consumer for the long term,” Brad Blackwell, a mortgage executive at Wells Fargo, told The Wall Street Journal. 

Most HELOCs allow borrowers to make interest-only payments usually for 10 years, which, after the credit crisis and a severe drop in home prices, is resulting in payment shock for consumers when the 10-year period ends. Consumers who borrowed during the housing bubble face a reality that the decline in home values is leaving them with soaring payments. 

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Wells Fargo is looking to become a leader in fixing “a flaw in the product” that caused these sharp increases, Blackwell told The Wall Street Journal. 

The company’s solution is to require consumers to pay principal and interest over the life of the loan, hoping this will eliminate future payment shock issues. However, Wells Fargo’s interest-only HELOCs will still be available for borrowers with “significant assets,” according to the report. 

Other banks are also considering reviewing their payment options, including J.P. Morgan Chase & Co. (NYSE: JPM) and Bank of America Corp. (NYSE: BAC), according to a Bloomberg report

To read the full Wall Street Journal story, click here

Written by Emily Study

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  • GOOD! Helocs have always been a thorn for borrowers because they do not understand the impact when the loan comes due and the banks havent done a good job explaining them either. I worked for a good sized midwest bank and was emphatically informed by my superiors i was ONLY to discuss the interest only payments. scary.

    • MastaD,

      Replace the term Helocs with reverse mortgages and it is no different than what our naysayers proclaim. You are blaming the product rather than the imprudent borrowing practices of HELOC borrowers.

      You blame the product rather than borrower or even HELOC originator practices. Like HECMs perhaps what is needed is counseling.

  • This is great news! But first, some comments about the announcement…..
    “A more responsible product,” and “The product should be designed to protect the consumer for the long term” Really? Providing a traditional HELOC is Irresponsible? And what loan, other than a HECM, is designed to “Protect the Consumer”? And we already know Wells’ position on that. “Payment shock for consumers when the 10-year period ends”? No kidding. And what about somewhat arbitrary reductions or cancellations of LOC’s by banks such as Wells for a variety of reasons.
    In any case, won’t the typical HELOC borrower simply draw even greater amounts from their line in order to make the larger monthly payments, thus accelerating the balance due at time of maturity or hitting the limit sooner? Or maybe the balance will be the same as it might otherwise have been. And won’t the line continue to be frozen at 10 years, requiring total payback over a 20 year amortization? Seem their “strategy” would be more appropriate for a Home Equity LOAN (i.e. closed end 2nd). Maybe they should discontinue making open end LOC’s altogether?
    Nevertheless, the bottom line is that this is the best thing that Wells could do for the Reverse industry. They have greatly widened the already significant differences between the positives of the HECM LOC and the negative (and “Irresponsible”) features of the their HELOC. If only they would refer out to a Reverse Lender those increasing number of applicants that don’t qualify for their HELOC, and we will take care of them, in a traditionally responsible and caring manner. Thank you Wells Fargo!

  • Wells is somewhat politically savvy as seen in the 2009 Congressional hearings on banks except when it came to misinforming Congress about the fact that they never offered homeowners a negatively amortizing mortgage. (What does CEO John Stumpf think HECMs and Cash Accounts are?Somehow he was never indicted for lying to Congress since he was under oath.)

    Measuring the mood in Congress, Wells seems to be trying to get ahead of the story and would rather lose some business now just before some kind of Congressional push back.

    While some seem elated about the potential loss of this product, the PRODUCT is sound and prudent when used prudently. Using the line of reasoning I am reading, reverse mortgages should be terminated next.

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