Wells Fargo, the biggest US residential lender, stops offering most customers interest-only version of its home-equity line of credit; new borrowers must repay some principal along with periodic interest instead of waiting until future years

Allison Oesterle

NEW YORK , June 2, 2014 (Bloomberg LP) – 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, according to Brad Blackwell, head of 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.

“We don’t think it’s a good product design,” Blackwell said in an 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, Wells Fargo said.

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

Bank of America Corp., ranked second by assets and based in Charlotte, North Carolina, is “considering an amortizing payment structure based on customer feedback,” according to Terry Francisco, a spokesman. New York-based Citigroup Inc. didn’t have an immediate comment.

To contact the reporter on this story: Elizabeth Dexheimer in New York at edexheimer@bloomberg.net To contact the editors responsible for this story: Peter Eichenbaum at peichenbaum@bloomberg.net Rick Green, Dan Reichl

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