If there has been one saving grace for homeowners caught between a loss of income due to the coronavirus pandemic and economic collapse and their bills piling up, it has been home equity lines of credit, or HELOCs.
Now even that appears to be at risk.
Wells Fargo (WFC) - Get Wells Fargo & Company Report became the second major bank in the U.S. this week to announce that it is will longer be accepting applications for HELOCs due to lack of visibility on the economy and housing market prompted by the coronavirus pandemic.
"Wells Fargo Home Lending will temporarily stop accepting applications for all new home equity lines of credit (HELOCs) after April 30," the bank said in a statement provided to media. "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."
The announcement follows a similar move by JPMorgan Chase (JPM) - Get Report earlier this week, in which the bank said it was temporarily not accepting applications to protect “both you and the bank,” according to a statement posted on the bank’s website.
While different than the 2008 financial crisis, in which banks stopped lending money due to a deep freeze in credit markets, what is of concern for banks and market-watchers is the depth and scope of this economic shutdown, particularly in the U.S.
For banks in particular, the more old-fashioned concern of how customers will be able to manage their debt is prompting the likes of Wells Fargo to reconsider making loans, particularly based on the value of real estate, which has very little visibility at the moment.