Fewer Options for Home Equity Loans?

Bank of America says it’s ending the loans because it is working on “product simplification,” but Wells Fargo attributes its decision to the “Know Before You Owe” rule, which goes into effect Oct. 3. The rule — also known as TILA-RESPA Integrated Disclosure — brings new documents to the mortgage lending process.

Home equity loans come in two types: closed-ended (usually just called a home equity loan) and open-ended (referred to as a home equity line of credit). A HELOC involves revolving credit where borrowers can choose when and how often to borrow against the equity in the property (a lender sets an initial limit to the credit). On the other hand, a home equity loan is a one-time lump-sum loan, often with a fixed interest rate.

“Because closed-end loans were a small percentage of our overall home equity volume, we chose to focus on our line-of-credit offering and not to extend the resources required to retool our closed-end home equity disclosures to meet the new [integrated disclosure] regulations,” Wells Fargo told Bankrate.

Source: “Time to Say ‘Goodbye’ to Home Equity Loans?” Bankrate.com (Aug. 7, 2015) and “TRID Pushes Wells Fargo Out of Home Equity Loans,” HousingWire (Aug. 11, 2015)