Homeowners may borrow against their equity in a variety of methods, including reverse mortgages and home equity lines of credit (HELOCs). While HELOCs are often utilized by consumers to borrow money at a lower interest rate than a credit card or personal loan, reverse mortgages are largely used by seniors to access their home equity in retirement.
It may seem unusual that some of the largest banks in the United States, including Bank of America (BAC) and Wells Fargo (WFC), don’t offer these products given their popularity. These banks formerly provided both services, but the 2008 financial crisis forced them to cease providing reverse mortgages, while the 2020 pandemic forced Wells Fargo to stop providing HELOCs.
We’ll explain why several major banks no longer provide reverse mortgages or home equity lines of credit in this post, along with the implications for customers.
- Around 2011, a number of big banks ceased providing reverse mortgages, presumably as a consequence of the 2008 financial crisis. It also seems that these banks couldn’t afford to take on the risk of reverse mortgages.
- Several large banks stopped providing HELOCs early in the epidemic, citing volatile market circumstances.
- A select few large banks have resumed issuing these loans, suggesting that there is still little demand for them.
- However, there are still many lenders that provide both products, so you shouldn’t have any problem finding either.
Big Banks and Reverse Mortgages
In the past, large banks like Wells Fargo and Bank of America played a significant role in the reverse mortgage industry. In 2011, only these two banks were responsible for more than 36% of all reverse mortgage loans in the nation. Then, in 2011, none of these banks continued to provide reverse mortgages.
At the time, Wells Fargo provided two explanations for why the firm was leaving the sector in a news statement. The first was the instability of housing prices after the financial crisis of 2008, which was partially brought on by a mortgage bubble. The second was HUD regulations, according to the business, “that make it difficult to establish seniors’ capacities to satisfy the responsibilities of homeownership and their reverse mortgage,” such as their capacity to pay property taxes and homeowners insurance. The same year, Bank of America said that other divisions of the business required the personnel and resources employed by its reverse mortgage program.
Some observers believed that the two large banks’ exit from the reverse mortgage market at the time had less to do with the value of homes and more to do with the potential for reputational harm if they remained in the sector. Mortgage lenders received a lot of bad news in 2011 as a result of their involvement in the 2008 financial crisis. Closing on reverse mortgage holders would probably make the issue worse.
With 16,213 home equity conversion mortgages (HECMs) in 2010, Wells Fargo’s share of the nation’s reverse mortgage market was only a minuscule portion of its overall retail volume. It’s possible that they and other major banks believed the danger associated with granting reverse mortgages outweighed the revenue it generated.
The absence of further incidents seems to support this theory. Neither Wells Fargo nor Bank of America have resumed issuing reverse mortgages in the years after this ruling. Given the absence of any new regulations that might have an impact on this market and the stabilization of housing prices in the interim years, it seems likely that both parties merely believe that the potential profit from reverse mortgages is not worth the negative publicity that could result from foreclosing on senior citizens.
Even while many large banks don’t give reverse mortgages or HELOCs, numerous smaller ones do. It’s crucial to look around for the cheapest rate if you’re thinking about taking out either form of loan.
Big Banks and HELOCs
Despite being considerably more recent, the issue with HELOCs is fairly comparable to what happened in 2011 with reverse mortgages. Several large banks stopped issuing new HELOCs in April 2020, at the start of the financial crisis of 2020.
For instance, Wells Fargo stopped creating new HELOCs. The lending conditions it provides on a number of other mortgage products were also tightened at the same time. Since then, the stricter requirements have been relaxed, but HELOCs are still suspended. Applications for new HELOCs were also “temporarily” stopped by JPMorgan Chase (JPM) and Citibank (C) in April 2020 and March 2021, respectively, owing to “current market circumstances.” In contrast, Bank of America kept issuing new HELOCs while tightening its credit requirements. These have now been loosened once again.
Once again, it’s hard to pin down the precise reasons why large banks ceased providing HELOCs. At the time that they halted HELOCs, many of these institutions acknowledged the possibility of economic instability, which undoubtedly had a role in the possibility of a pandemic-driven drop in housing values. But those banks are still not accepting applications, despite the recovery of the economy and the rise in house values.
This could just be the result of low demand, according to Laurie Goodman, co-director of the Housing Finance Policy Center at the Urban Institute, who spoke to Marketplace in late 2021. Given the low rates, she guessed that the market for this goods had simply vanished. For much of the last year, 30-year mortgage rates have been around 3%, making cash-out refinancing more appealing for homeowners who want to access their equity.
Frequently Asked Questions
Can I still get a reverse mortgage or a home equity line of credit (HELOC)?
Yes. These items are still provided by several smaller vendors (as well as some big ones). Make sure you compare prices to get the best offer and that the lending institution is one you can trust.
Will Wells Fargo or Bank of America ever offer reverse mortgages again?
It’s hard to say. Since neither institution has been providing reverse mortgages for ten years, it would probably take a significant change in the housing market for them to alter their stance on these loans. Seniors seeking a reverse mortgage should go elsewhere for the time being.
Is a HELOC worth it?
Depending on your circumstances. There are several ways to release part of your home’s value. Generally:
- If you desire consistent monthly payments, a home equity loan is the ideal option.
- If you have ongoing projects, a HELOC is preferable.
- If your mortgage presently has a high interest rate, a cash-out refinancing is the best option.
A cash-out refinancing can be the best option for you while rates are low.
The Bottom Line
A number of significant banks ceased providing reverse mortgages in 2011. This decision seems to have been influenced by the 2008 financial crisis, but it also seems that reverse mortgages were just too hazardous for these institutions. Reverse mortgages may provide negative press if banks have to foreclose on seniors, and they weren’t a significant source of revenue for these institutions to begin with.
In 2021, a similar circumstance with HELOCs took place. Several large banks ceased providing HELOCs in the early stages of the 2020 financial crisis, citing volatile market circumstances as the cause. Since then, it seems that there is still a limited demand for these loans, since just a handful of these large banks have recently begun making them available once again.
You shouldn’t have any problem obtaining either product, since there are still many lenders that provide both. Just make sure you compare prices and are confident with the company you pick.
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