Though millions of Americans are out of work, they may find it difficult, if not impossible, to tap into their home equity to help them through lean times.
New home-equity lines of credit dropped 19% from March through May compared with the same time last year, according to preliminary data from credit-reporting firm Equifax Inc.
The reason? Many lenders, primarily large national banks, are getting stricter about offering the credit lines, known as HELOCs. JPMorgan Chase & Co. and Wells Fargo & Co., to name two examples, have temporarily stopped accepting new HELOC applications, The Wall Street Journal reports. Other lenders, meanwhile, have tightened their standards.
But local lenders say that trend hasn’t trickled down to the Baton Rouge market, and executives at community and regional banks say they’re not following the big banks’ lead—at least not yet.
“We’re still business as usual,” Red River Bank President and CEO Blake Chatelain says. “But I am aware of numerous banks that have suspended them.”
Regions Bank isn’t restricting its credit lines, either, according to Executive Vice President Danny Montelaro.
Larger banks that are cutting back on their HELOCs are likely trying to protect themselves from the losses they suffered in the 2008 crisis, when borrowers who had been using their homes as ATMs defaulted as housing prices unexpectedly tanked. But the lenders’ caution means that in many cases borrowers who thought they would be able to fall back on their home equity in a crisis can’t do so now.
Investar Bank President and CEO John D’Angelo says it’s not uncommon for large national banks to move quickly in uncertain times to reduce their exposure in various lines of business or cease lending entirely in certain loan segments.
“I’m not judging or disparaging them,” he says. “That is their risk-management practices.”
But, as with the way smaller banks responded to their customers in processing PPP loan applications earlier this spring, community and regional banks are taking advantage of the opportunities created by big bank policies.
“Investar is still originating jumbo mortgages, consumer loans and HELOCs,” D’Angelo says. “Instead of terminating those products, we slightly reduced our loan-to-value criteria to account for any uncertainty in real estate values. We have benefitted from changes at other banks even with our slight adjustments.”
Just because the national trend hasn’t found its way here yet, doesn’t mean it won’t, says b1Bank President and CEO Jude Melville. It will depend on how long the economy stays depressed and what happens to housing prices in the weeks and months to come.
“Smaller banks could eventually follow suit and tighten access to housing lines of credits,” Melville says. “There will eventually be pressure on dollar amounts available because of appraisal issues and we will have to work through that.”