Wells Fargo Requires Principal Payments on Home-Equity Loans

Jun 02, 2014 3:08 pm ET

(Updates with Citigroup statement in last paragraph.)

June 2 (Bloomberg) -- Wells Fargo & Co., the biggest U.S. residential lender, has stopped offering most customers the interest-only version of its home-equity line of credit.

New borrowers must repay some principal along with the periodic interest instead of waiting until future years, Tom Goyda, a Wells Fargo spokesman, said today in a telephone interview. Customers of the San Francisco-based bank can still get the interest-only option if they have “significant assets” and demonstrate ability to handle a bigger bill when principal becomes payable, Goyda said.

Wells Fargo first made the change in November, according to Goyda. The revision was reported earlier today by the Wall Street Journal.

Banks have ratcheted up borrowing requirements after defaults soared during the credit crisis, leading to the most severe drop in home prices since the Great Depression. Regulators and analysts have expressed concern that borrowers could face payment shock when their monthly bills rise for existing home-equity loans that were made before the bust.

Wells Fargo made the change to head off such shocks again, according to Brad Blackwell, who oversees portfolio lending. Tighter U.S. regulations on first mortgages may prompt some rivals to offer more interest-only lines of credit to customers who don’t qualify for a regular loan, Blackwell said.

‘More Responsible’

“We don’t think it’s a good product design,” Blackwell said in a phone interview. Requiring customers to pay part of the principal is “a more responsible product,” he said.

Wells Fargo’s home-equity portfolio totaled $82 billion in the first quarter, the company said.

The bulk of New York-based JPMorgan Chase & Co.’s home- equity products are interest-only and “we continuously review repayment options for our home-equity product, including principal payments,” said Amy Bonitatibus, a spokeswoman for the biggest U.S. bank by assets.

Bank of America Corp., ranked second by assets, is “considering an amortizing payment structure based on customer feedback,” said Terry Francisco, a spokesman for the Charlotte, North Carolina-based lender. While No. 3 Citigroup Inc. continuously reviews its offers, the bank has no plans to change its interest-only home-equity credit products, Mark Rodgers, a spokesman for the New York-based company, said in an e-mailed statement.