Why Don’t the Big Banks Offer Reverse Mortgages and HELOCs?

Both reverse mortgages and home equity lines of credit (HELOCs) are popular ways for homeowners to borrow against the equity that they have built up. Reverse mortgages are primarily a way for seniors to tap their home equity in retirement; HELOCs are used by many consumers to borrow money at a better interest rate than a credit card or personal loan.

Given the popularity of these products, it might seem strange that some of the biggest banks in the United States—Bank of America (BAC) and Wells Fargo (WFC), for example—don’t offer them. These banks used to offer both products, but the 2008 financial crash led to them both pulling out of reverse mortgages, and the pandemic of 2020 pushed Wells Fargo to stop offering HELOCs.

In this article, we’ll explain why a number of big banks no longer offer reverse mortgages or HELOCs, and what that means for consumers.

Big Banks and Reverse Mortgages

Big banks such as Wells Fargo and Bank of America used to be a major part of the reverse mortgage business. As of 2011, these two banks alone accounted for more than 36% of the reverse mortgage loans across the country. Then, in 2011, both of these banks stopped offering reverse mortgages altogether.

In a press release at the time, Wells Fargo offered two reasons why the bank was abandoning the industry. The first was the unpredictability of house prices following the 2008 financial crisis, which had been partly caused by a mortgage bubble. The second, the company said, were HUD restrictions “that make it difficult to determine seniors’ abilities to meet the obligations of homeownership and their reverse mortgage”—for example, their ability to pay property taxes and homeowners insurance. The same year, Bank of America said the staff and resources used by its reverse mortgage operation were needed in other parts of the company.

At the time, some analysts felt that the departure of these two big banks from the reverse mortgage market had less to do with house prices and more to do with the risk of reputational damage if they stayed in the market. In 2011, mortgage lenders were the focus of a good deal of negative press due to their role in the 2008 crash. Foreclosing on reverse mortgage holders was likely to exacerbate this situation.

At the time, Wells Fargo had about a quarter of the country’s reverse mortgage business, but that line accounted for just a tiny percentage of its retail volume: 16,213 home equity conversion mortgages (HECMs) in 2010. It may be that they, and other big banks, saw issuing reverse mortgages as too large a risk compared to the money that it brought in.

Subsequent events—or rather, a lack of them—seem to corroborate this idea. In the years since this decision, neither Wells Fargo nor Bank of America has started offering reverse mortgages again. Given the lack of new regulation that could affect this market, and the stabilization of house prices in the intervening years, it seems likely that both simply feel that the profit to be made from reverse mortgages is not worth the potentially damaging headlines associated with foreclosing on seniors.

Big Banks and HELOCs

The situation with HELOCs is somewhat similar to what occurred in 2011 with reverse mortgages, albeit much more recent. Back at the beginning of the 2020 financial crisis, in April 2020, several large banks suspended new originations of HELOCs.

Wells Fargo, for example, suspended the origination of new HELOCs. At the same time, it tightened the loan terms that it offered on several other mortgage products. These tighter standards have been reversed since, but HELOCs remain suspended. JPMorgan Chase (JPM) also “temporarily” suspended applications for new HELOCs in April 2020, and Citibank (C) announced the suspension of HELOC applications after March 3, 2021, due to “current market conditions.” Bank of America, in contrast, continued issuing new HELOCs but implemented tighter credit standards. These have since been relaxed again.

Again, it’s difficult to tease out the exact reasons why big banks stopped offering HELOCs. The potential for a pandemic-driven crash in house prices certainly played a part, and several of these banks mentioned the potential for economic uncertainty at the time that they suspended HELOCs. But even as the economy recovers and housing prices boom, those banks still aren’t accepting applications.

Laurie Goodman, co-director of the Urban Institute’s Housing Finance Policy Center, told Marketplace in late 2021 that this simply might be due to low demand. “My guess is that the demand for this product simply evaporated, given how low rates are,” she said. With 30-year mortgage rates falling below 3% for much of the past year, it makes more sense for homeowners who want to tap their equity to do a cash-out refinance.

Frequently Asked Questions

The Bottom Line

In 2011, a number of major banks stopped offering reverse mortgages. The 2008 financial crisis seems to have played a role in this decision, but it also appears that reverse mortgages were simply too risky for these banks. Reverse mortgages can generate damaging headlines if banks have to foreclose on seniors, and they didn’t represent a huge source of business for these banks anyway.

A similar situation occurred with HELOCs in 2021. During the early stages of the 2020 financial crisis, several big banks stopped offering HELOCs, citing unpredictable market conditions as the reason. In the months since, it seems that demand for these loans is still low, and thus few of these big banks have started offering them again.

However, there are still plenty of lenders that offer both products, so you shouldn’t have trouble getting either. Just make sure that you shop around for the best deal and that you trust the provider you choose.