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.
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