Remember the financial crisis? Banks do.
Lenders are being stingy about granting home equity lines of credit even as home values have soared, the Wall Street Journal reported.
Blame the pandemic and memories of the late 2000s, when millions of homes went into foreclosure.
Citibank stopped accepting new applications for home equity lines of credit, or helocs, on March 3, because of “market conditions,” according to the Journal.
J.P. Morgan Chase and Wells Fargo halted helocs a year ago as the U.S. economy shut down for Covid. Wells Fargo cited “market risks and prudent balance-sheet management.”
Bank of America did continue extending home equity lines of credit, although it tightened standards briefly during the pandemic.
Unlike cash-out refinancing, which amends an original mortgage loan, helocs constitute a second mortgage, payable only after the first mortgage is satisfied — if enough equity is left over. Lines of credit are also different from home equity loans, in which a single chunk of cash is borrowed against a home’s value.
Home values have skyrocketed in the past year, but the scars of the financial crisis and Great Recession run deep among lenders and homeowners.
“Homeowner psychology has changed a bit,” said Mike Fratantoni, chief economist of the Mortgage Bankers Association. “Customers seem a little more hesitant about tapping their home equity.”