Two of the nation’s largest banks and several smaller lenders have temporarily stopped making new home equity loans, at least until the future of the economy comes back into focus.
DEAR DAVE: My husband and I have a $35,000 home equity line of credit with Wells Fargo, which also holds the first mortgage on our house. We heard a radio report a few days ago that Wells is now refusing to take new home equity loan applications because it [apparently] is worried about how home prices will fare in the months ahead because of the COVID-19 virus. Does this mean that our equity line will be canceled or reduced too?
ANSWER: No, at least not yet.
As you know, a home equity line of credit — commonly referred to as a “HELOC” — is a credit line that is based on a homeowner’s equity stake in the property. The more equity the homeowners have, the larger amount they can borrow in the future.
“The decision to temporarily suspend the origination of new HELOCs reflects careful consideration of current market conditions and uncertainty around the timing and scope of the anticipated economic recovery,” Tom Goyda, a Wells Fargo (wellsfargo.com) spokesman, said in a statement.
However, Goyda stressed that the change does not affect bank’s existing home equity customers. You and its other borrowers with existing HELOCs will be able to continue to draw funds.
Wells Fargo’s move earlier this month came on the heels of a similar decision made by JPMorgan Chase (jpmorgan.com), the nation’s largest lender based on its financial assets.
In addition to suspending the acceptance of new applications for HELOCs due to what it called “economic uncertainty,” Chase said it would also require borrowers applying for a loan to purchase a house to make at least a 20% down payment and have an above-average FICO score of 700 or more.
While many mortgage lenders are becoming more cautious about the future of the housing market, most real estate agents are confident that sales and prices will resume their upward climb after the COVID-19 pandemic passes.
A recent survey by the National Association of Realtors (realtor.org) of its members suggests that most of them expect a rebound in the second half of the year, thanks largely to the pent-up demand created by Americans who have temporarily put their home-buying plans on hold and the relatively low number of houses that are currently for sale because of virus-related concerns.
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REAL ESTATE TRIVIA: More than 4 million borrowers are now in either government or bank forbearance programs, according to mortgage data firm Black Knight (blackknightinc.com), allowing them to postpone their loan payments for at least 90 days.
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DEAR DAVE: My mother died in 2018, and my father passed away two weeks ago. I was their only child and have been willed their house, which is mortgage-free and worth about $320,000. Will I owe federal estate taxes…