Hacker News Reader

Comment by jacurtis | Hacker News Reader

The significance of this announcement (and why I am assuming OP posted it), is not to let us know that we can't get home equity lines, but instead showing it as a signal that one of the largest mortgage providers in the world is worried about future home/land values.

Remember that Wells Fargo is the 26th largest corporation in the world. They have plenty of money. They have lots of smart people (insert your "stupid banker" joke here) working for them. They have lots of highly-paid analysts that make these decisions. These are not spur-of-the-moment, panic-induced decisions. Wells Fargo also has a lot of experience with home values and mortgages, by being the largest Home Mortgage provider in the US (by dollar value), with $126B in home loans [1].

Long story short, they are experienced in home values and mortgages and they have a lot riding on them. They have smart people that have looked at the current and future state of home values and decided, that despite the potential revenue that could be generated from Home Equity Lines, there is too much risk in offering this product and they will stop offering it until further notice.

That's a big deal. Wells Fargo is leaving lots of money on the table by NOT offering these. But their analysts have decided that it is too risky. That to me, means that there is a lot of concern over future home value. We have been living in a housing bubble for a while. We all know it, Wells Fargo knew it, and this could be a signal that at least Wells Fargo is concerned that the bubble might be popping.

(I personally hate Wells Fargo, but did have a Home Mortgage through them until about 3 months ago when I sold my last home. I wouldn't borrow from them again however. This isn't a fanboy piece, but it is important to acknowledge their strengths when looking at signals like this).

[1] - https://www.housingwire.com/articles/41539-here-are-the-top-...

View on HN

I don't see this as a direct bet against home values, but rather a bet against employment and on turmoil.

WF may be seeing tons of applications for home equity lines in order to backstop failing households. If they're not sure that they'll get paid back, then WF won't want to make the loan.

I once was involved with corporate loan negotiations where the lender could have easily taken the borrower up on a proffered deal, but the fate of the borrower's company would have been sealed on the day the loan was signed. The terms were such that the borrower's odds of being able to repay the loan were <10% and the collateral requirements were at least twice the loan amount. The lender would have roughly doubled their money at the expense of a headache, but chose to walk away instead. The borrower would have taken the deal at almost any price. In the lender's words, "We're in the loan business, we want to make loans where people can pay interest."

My thank-you letter to the lender for walking away was one of the first they'd ever received.

They may also lack confidence in their ability to foreclose on homes with delinquent HELOCs.

And the resale value of the foreclosed home would be lower too. Good collateral is important.

I can't parse from this why you'd turn down a 100% return - it sounds like the implication is the headache of collecting is too annoying, but that's not a very rational approach

I think there were three reasons:

1) The loan officers were good people, with the borrowers' best interest in mind.

2) The headache would have been substantial.

3) They really are in the loan business, not the foreclosure business.

4) They couldn't see a way to make money by fraudulently opening millions of fake accounts in the process.

I was in the room. 4) wasn't a factor.

The loan officers were trying hard to understand how the proffered deal wouldn't kill the borrower's company.

If I ever need a loan that falls into their scope, I'm calling them first.

In one case, WF cared about the customer. Given that they literally got caught perpetuating one of the largest consumer banking frauds in human history, forgive me if I don’t trust them to do the right thing consistently.

I think the question is one of ethics or morals, and not predation.

Potentially two reasons:

- First is the moral/ethical reason - it doesn't matter your religion or lack thereof, causing someone to crash and burn, causing unemployment, and generally ruining lives is bad.

- Second is their business. Banks are in the lending business. Unless the collateral was cash or stocks (unlikely based on explanation), they'd have to figure out how to repossess and then dispose of the assets. Yes, they probably have a group that handles that sort of thing but you're introducing unnecessary headaches.

Either way, walking away sounds like the right and good call.

There's also risk involved in taking possession of collateral. If you've written a loan such that collateral is 2x the loan amount, but then all potential buyers of the collateral fall on similar hard times such that you have to sell it at 10 cents on the dollar, then you've still lost 80% of your loan value. Prices aren't static, and they reflect what's going on in the market at any given moment. If the market basically evaporates right as your loan comes due, then the value of your collateral isn't what it was when the loan was written, it was what it is when the loan defaults.

Good point. I bet that "prime retail space" in January is looking more like a liability than an asset right now. Thanks for getting me to be more pessimistic. ;)

Retail real estate doesn’t look anything like home real estate financially, which is why it does “weird” things compared to homes, such as leaving units empty for months in desirable areas.

The core of it is how commercial real estate is financed; it’s financed on a rolling basis rather than a 1 time mortgage, like a home. This means that rather than revenue most commercial real estate owners are more concerned about what their next financing round will look like. For reasons I cannot explain, bankers care less about the rent a building does receive than they care about the rent it could receive. This incentivizes building owners to leave units empty rather than lower rates, as it actually ends up significantly cheaper for them in the long run.

"it doesn't matter your religion or lack thereof"

Bet you didn't know this, but there is a company (an REIT actually) that is publicly traded on the stock market, that specializes in loans to nonprofit religious organizations..."American Church Mortgage Company". Currently appear to be paying a sizable dividend.

"The outbreak of the novel coronavirus (COVID-19) has adversely affected many industries in general and resulted in orders preventing congregation which impacts the ability of churches and other non-profit religious organizations normal methods of worship...To the extent that churches and other non-profit organizations operations in the U.S. are materially and adversely affected by the coronavirus, business and financial results of this industry, and thus our business and financial results, could be materially and adversely impacted."

...and yes, they do foreclose on churches:

"As of December 31, 2019, we had ten first mortgage loans totaling approximately $4,074,000 that are three or more monthly payments in arrears. We may incur a loss if these borrowers are unable to bring their payments current and we are compelled to foreclose on their properties. We may be unable to dispose of the foreclosed properties on terms that enable us to recoup our expenses and outstanding balances.

As of December 31, 2019, we held title to one property located in Bethel, Ohio through a 2018 foreclosure process with an outstanding balance of $114,632"

"The business of making loans to churches and other non-profit religious organizations is highly competitive. We compete with a wide variety of investors and other lenders, including banks, insurance companies, pension funds and fraternal organizations which may have investment objectives similar to our own. A number of these competitors have greater financial resources, larger staffs and longer operating histories than we do. We compete principally by limiting our business "niche" to lending to churches and other non-profit religious organizations, offering loans with competitive and flexible terms, and emphasizing our expertise in the specialized industry segment of lending to churches and other religious organizations. Our competitive “specialty” is in offering fixed-rate, long-term loans, which few of our competitors make available to churches."

https://www.marketwatch.com/investing/stock/acmc

It's a bet against home values if Wells is worried they wouldn't be able recoup the value of the loan if the borrower default. Alternatively, they're worried that the government will block foreclosures, so they'd rather not load out money they can't recoup, and they'll take their chances with insolvent homeowners sooner rather than later.

Home price and labor value are closely tied under most circumstances. If lots of the population loses the ability to pay their mortgages, one would expect home value to drop as fewer can afford to buy foreclosed or distressed property.

As a large mortgage provider, home prices are the best tool that WF has to hedge against large changes in labor value.

I think that's a bit idealized. When the price-rent ratio is high, like now and in every other housing bubble, home values detach from labor as they're driven mostly by speculation.

Any rational discussion about price relationships should include a “bubbles excluded” caveat.

If this decision were based on projections/fears about property values they would cease or dramatically cut back all loans secured by real estate. I think this decision is driven more by projections on (1) the average borrower’s ability to repay given the swift and dramatic economic changes, (2) uncertainty around legislative changes that might temporarily make the terms of these and other loans less favorable to banks, and to a lesser degree (3) the pecking order for HELOCs in the event of foreclosure.

Italy suspended mortgage payments during their lockdown and (correctly, IMO) forced banks to bear some of the financial burden of the economy grinding to a halt. It’s certainly less likely for the US to pass a similar measure but it’s entirely possible that banks could be required to do significantly more “rehabilitation” on defaulted home loans than they have in the past. That’s an expensive undertaking for a bank even in the best of economic times.

I think your third point kind of supports the idea that banks are concerned about future property values. HELOCs are typically junior liens, and in the case of a property that loses its equity, essentially unsecured debt. If they aren’t concerned about property values decreasing, then presumably they would be confident they’d recuperate the lended amount through the foreclosure. If the property is underwater that is unlikely to be the case.

> instead showing it as a signal that one of the largest mortgage providers in the world is worried about future home/land values.

While that's one possible reason for this decision, there are other possible reasons. For example, they may not know how future "payment suspensions" will be handled (https://update.wf.com/coronavirus/home-lending/), may not like it (particularly with HELOCs that they keep on their books, unlike most mortgages), and/or may not want the reputation damage or headache of foreclosing on collateral (even if it would cover the debt). Any of those could completely explain this.

I agree - I see this as much more of a comment on consumer credit-worthiness than on home/land values.

It’s more likely a recognition of adverse selection in anyone seeking a loan now than a particular opinion about housing values.

Under basically no point does Wells Fargo want to foreclose on a house. They will get pennies on the dollar for it independent of macro price differences.

So in analyzing risks a 10% increase in foreclosures is going to weigh dramatically more than a 10% decrease in home values.

> Remember that Wells Fargo is the 26th largest corporation in the world. They have plenty of money. They have lots of smart people (insert your "stupid banker" joke here) working for them.

I remembered this: https://www.theguardian.com/business/us-money-blog/2016/oct/...

"disclosed that it would fork over $185m in penalties to regulators after an audit discovered that employees opened as many as 2m deposit and credit accounts in customers’ names but without their consent"

But do agree, however much of the market is driven by such actions and if they are right or wrong, their move will make it more inclined to happen than had they made no such move. Which is an aspect that plays out in many financial markets in various forms.

This too:

https://news.ycombinator.com/item?id=23053272

> We have been living in a housing bubble for a while. We all know it, Wells Fargo knew it, and this could be a signal that at least Wells Fargo is concerned that the bubble might be popping.

I really doubt that. Home values are high in urban areas because of high demand and low supply. The buyers are actually qualified and can afford to pay their mortgages. Mortgages are not being handed out like candy like they were in 2008.

Right now the situation is kind of the inverse of 2008. In 2008, a recession triggered mass job loss. Today, mass job loss resulting from the virus lockdowns has triggered a recession. No bubble burst.

I would bet Wells Fargo is more worried about people who are otherwise creditworthy suddenly being unable to make payments because they lost their jobs, or the government suspending payments. In a situation like this, credit history is not very useful in evaluating risk.

"In 2008, a recession triggered mass job loss. Today, mass job loss resulting from the virus lockdowns has triggered a recession"

While what triggered this is different, because one has a direct impact on the other the OP is still right about the housing bubble IMO.

Trigger (virus) --> mass job layoff in directly affected industries (e.g. travel) --> recession --> more job losses in second order affected industries (e.g. advertising, food supply) etc. ... --> ultimately impacting asset prices like houses which grew too much too fast

It’s because the government is only buying mortgage backed securities right now for conventional residential loans that don’t include HELOCs which the bank would shoulder all the credit risk for.

If the government is guaranteeing one type of residential real estate loan and not the other it makes no sense for a bank to offer the one that isn’t guaranteed when they can just pursue practically risk free lending.

Same story with jumbos.

The real concern for the banks is that HELOCs are second lien mortgages, so the risk is considerably higher if there's a default.

First lien mortgages get the house. Second lien gets whatever's left over, and guaranteed that the process is painful.

Chase did the same thing a while back, for the same reasons.

I agree that WF has plenty of smart people making these calculations but I'm less attached to the theory that "we have been living in a housing bubble for a while. We all know it."

We may absolutely be in for a housing market correction because of COVID's impact on consumer cash flow and its impact on the housing market.

Maybe you're just referring to the last handful of months? In that case, I think it's sort of nuanced (we didn't know exactly how long shutdowns would be needed or how significant the impact would be in early February, certainly) but maybe reasonable.

I don't believe this supports the idea that there was a bubble prior to COVID (say, February or March 2020 for the US).

The massive and steady increase in home value would suggest a bubble, no?

I wouldn’t be surprised if some markets were in bubbles and others weren’t.

I think there is a lot of speculation about the Bay Area and SF being in a bubble due to high prices. The demand is still there though and it’s actually grown quite a bit in recent weeks ( SF specifically ).

Cities with a lot of service and factory workers will see a larger correction.

This is a more nuanced take and I totally agree. Everything about housing markets is very local.

The Bay Area isn’t in a bubble either, it’s a market whose pricing dynamics are determined by constant strong demand due to economic prospects combined with city councils artificially constraining supply to the benefit of landowners.

There also really isn’t much of an incentive to sell unless you plan on buying more homes in the Bay Area. The tax hit is too high to simply cash out.

Especially with rents as high as they are. Some higher end 1BR condos are cash flow positive immediately at purchase at the moment. Much more tax efficient, too.

This is the sort of reasoning that scares me, because it assumes prices stay the same across wide economic shocks. Prices don't stay the same. In my neighborhood I've seen widespread move-outs at the end of March and April - as in I'd take a 10 minute walk around the block and see 5 families moving out at that instant. When you've got 20% vacancies you have a very strong incentive to drop prices and fill that apartment now, or else you get foreclosed upon because you're not getting rent. I just took a quick glance at Craigslist and am seeing a $200-300/month drop in rent just in the last couple weeks. My neighborhood is at the bottom of the market, but economic distress tends to travel up-market as spending drops, people seek cheaper digs, and vacancies trickle down.

If lots of people were buying 1BR condos because they saw a profit opportunity arbitraging the difference in rent vs. mortgage payments, then a small drop in rents might mean that a large number of people can't make their mortgage payments. That's a big problem, because it implies a foreclosure wave that'll put further downward pressure on prices.

That's the risk, right. You have to account for that or you're doing a really bad job of building a real-estate business. This is often cited as a reason multi-family homes (or larger) are better for landlords than individual units: if you have an apartment you rent out and you have a vacancy, that's a 100% vacancy rate. If you buy a 10-plex and you have a vacancy thats a 10% vacancy rate.

Luckily, or not depending on how you look at it, SF properties and rents tend to be fairly predictable as compared to other markets in large part due to the artificial supply constraints imposed by city council, and the huge demand of the tech industry which tends to weather downturns pretty well. If you can afford $4500/month in rent for a 1 bedroom, chances are you're not going to be fired first.

Cash flow positive mortgage purchase in the bay area? Can you share an example?

Personally I'm a huge fan of 855 Folsom (https://www.redfin.com/CA/San-Francisco/855-Folsom-St-94107/...). It's got that prison-chic aesthetic I love -- kidding, but not kidding -- the architect was Stanley Saitowitz [1]. I nearly bought a unit there. Went with something north of Market instead.

A similar unit is on HotPads renting for $4500/month (https://hotpads.com/855-folsom-street-san-francisco-ca-94107...).

So with 20% down, 30 Year Fixed, 3.905% Interest, you're paying $3353 in mortgage, $903 in taxes, $605 in HOA and $163 in homeowners insurance. Set aside 1%/year for damages and repairs - $74/mth. (total $5100).

66% of your mortgage in the first year and all those fees are tax deductible, so you can deduct a total of $3900/month. [2] Depending on your tax bracket you can expect to get back $1500.

So your total expenses ($5100) minus tax deductions ($1500) is $3600/month, and it's renting for $4500. You could realize $900 free cash flow, assuming you're a well paid tech worker. Not to mention you'd have your renter building equity in your unit for you -- another $1106/month. Depending on how you account for that, your monthly realized profit could be about $2000.

NOTE: That's after-tax cash flow, which is the model I went with when I was running numbers on my own unit, and it depends on your tax bracket. I picked pretty generous numbers so YMMV.

[1] https://en.wikipedia.org/wiki/Stanley_Saitowitz

[2] https://www.irs.gov/businesses/small-businesses-self-employe...

Thanks for sharing. It's true that the numbers are reasonably close there. I wonder if this results on the type of property, because my experience looking at this was that the business was banking on appreciation more than cashflow. Even real estate companies have decided to ignore SF (Open door, Unison, etc)

[*] I doubt that you can rent such a unit at 4,500. Its well above market, so it either has high rotation or high closing costs. Also really hope the US cleans up their act with their tax policies on housing.

I think many businesses do tend to focus on appreciation over free cash flow because a lot of the FCF in my model comes from tax deductions which aren't super relevant for a business which then distributes all its proceeds. The win here might be whatever the positive take on a lack of economy of scale might be called.

Remember 20%-down mortgages are 5X leveraged investments in real-estate so even a 1% appreciation in the underlying works out to a ~5% ROI. To the extent they break even on rental I could easily see why they'd rather take the appreciation.

OpenDoor would have a heck of a time in SF, buying units sight-unseen. On the one hand it would be lower risk thank Phoenix, but it would tie up an ungodly amount of capital.

Re [*]: Totally. $4,500 is a lot, no question, though in it's favor units at 855 come with deeded parking -- in the building, which is ~$300/month in extra value for downtown condos. They're also new, super-modern lofts, and quite large, and SOMA lofts are very reasonable on a $/sqft level. 10 minutes walk to the IG and FB buildings too. I think factoring in all the +'s it's not uncompetitive with similar units nearby without parking in the low 4000's range.

No — a bubble is "a situation in which asset prices appear to be based on implausible or inconsistent views about the future."[1]

Home value increases have not been particularly steady. And to the extent there is a sustained effect, it is in part due to long-standing government priority of individual home ownership, implemented in a policy of subsidizing home ownership, and in part due to concentration of jobs and people in cities as part of a labor shift.

Edit: almost_unusual makes a good remark that some locales are probably in bubbles and others not; it's something specific to any given region rather than some sweeping statement about the national market.

[1]: https://en.wikipedia.org/wiki/Economic_bubble

>No — a bubble is "a situation in which asset prices appear to be based on implausible or inconsistent views about the future."

"AirBNB or something like it will exist in 2 years."

"Monetary policy will not begin to dry up the glut of cash which has objectively ballooned asset prices since 2008."

"Covid will not permanently change certain habits which would otherwise cause a devaluation of property in major cities."

"Some major economic entity will not collapse in the next 2 years."

>it is in part due to long-standing government priority of individual home ownership

This strikes me as a commonly-bandied, well-debunked talking point.

I think your first argument can be summarized as "everything is uncertain, so the future asset value of anything should be assumed to be zero." This is not an especially useful valuation strategy, so nobody else uses it.

> [remarks on US promotion of homeownership] strikes me as a commonly-bandied, well-debunked talking point.

Please provide a "debunking" of the idea that the US government does not explicitly prioritize, as a matter of policy, and subsidize, home ownership. Here are some facts that run counter to that idea:

1. The US literally has a "National Home Ownership Month" (it's June).

2. The mission statement of HUD's Office of Housing includes "Maintain and expand homeownership."

3. FHA loans.

4. Mortgage interest deduction on primary residences.

5. Capital gains exemption on (a large portion of) primary residence sales.

No, the first argument is that you, and others, are underestimating the certainty of the examples given coming to pass. Should they, the assumptions under which the market seems to be operating become falsified.

>Here are some facts that run counter to that idea:

Well, first, I'd like to see facts that actually run counter to that idea. What you've shown is that the government supports and promotes home-ownership for a portion of the population. They don't prove that the government prioritizes home ownership over other policy that could be contributing to asset value increases - say, signals to our national bank to manipulate the money supply. One way to check would be to compare the amount of funding vested in pro-home ownership policy to the amount related to the aforementioned.

Suffice it to say, I'd love the government to invest in the average American to the degree that they've invested in the people who can most directly access the benefits of liberal monetary policy.

Nope, on average in the United States home price per square foot is the same in constant dollar terms (give or take) as it was in the 70’s - since then the average size of an American home has gone up, however.

Larger buildings and new technology should both put downward pressure on price per square foot.

I mean, they could, but that doesn’t change matters - house pricing has been consistent for decades. While larger buildings and new tech put downward pressure, things like better building standards, tighter codes, efficiency programs, more expensive materials, permitting and so on, add cost.

Yes, my point was that your other comment was not a sufficient explanation for steady/rising prices.

Fair enough. However the reason I mentioned house size is because housing on average "effectively" became more expensive in real dollar terms because the median home got bigger. So while it's the same price per square foot, it doesn't matter if you can only buy square feet in bulk.

Productivity in construction is actually trending downwards, not up.

The big advancements in tech happened in the mid-20th century with suburban developments that made construction into something of a factory, on site.

In recent years, there have been a few startups trying to make a factories for multi family housing. The idea is to construct modules in a remote factory where you can drive economies of scale, and workers have consistent schedules with steady employment. Then ship modules to the site and stack the blocks in a tiny amount of time to minimize disruption.

Traditional construction management is some absolutely hellish logistics, involving all sorts of waiting for just the right contractor, and everybody carrying risk in weird ways. It's amazing that anything even gets built.

And then the planning stage is even more hellish, especially in places with high cost of construction like California. Only single-family-home builds have any sort of guarantee that if you meet code and zoning, you will be allowed to build. For any thing that is more affordable, like townhomes or apartments, the political process takes priority over the planning department. California cities are also completely cash strapped because of insane unfair property tax breaks for old wealth, meaning that impact and permit fees can easily eat of 10%-25% of the entire project cost. And that's after huge expense of re-planning many times according to community and politician whim, and it only takes a tiny number of housing opponents to force builders into a game of multi-year delays to try to stop all development, by running out the clock on financing that was secured to begin the whole process.

All this is to say is that our housing problems are, at the moment, a political problem much akin the US's healthcare problems. Intractable conflicts between entrenched interests prevent common sense wins for everybody. Technology can seem like a solution (e.g. EHRs) but seldom have any impact, either positive or negative.

I can easily imagine home value risk is one issue. The other is a lot of people whose credit worthiness looks good on paper (for now) rushing to tap into a line of credit "just in case" because they realize their employment prospects could be quite shaky.

The combination of a federal mortgage payment vacation, and a 10-20 percentage drop in housing prices could make it attractive to pull out all your equity, stop maintaining the property, stop making payments and get 2 years of free rent before foreclosure.

HELOC is the one type of loan that I tell everyone to get the moment you can. After the crisis in 2008 we found that, when you NEED a loan...you can’t get one.

The only thing that got us through was that we already had an equity line open and once open, it’s just like a low interest credit card. You don’t pay anything for it if it’s not being used but having it available provides a big emergency buffer.

It’s the primary reason I tell everyone to put down 20% on your home because as soon as you do that, you don’t pay PMI and you qualify for HELOC.

Really? I'm confused. I would think that they could rescind the offer to draw on it for the same reason they would pull back on making home equity loans. And why wouldn't they?

Not saying you're wrong, it's just I don't see what kind of dynamics would lead to that kind of thing, where the economic situation drastically changes to the point where they won't make new HE loans but will gladly honor anyone's exercise of an existing HELOC on (mostly) the same terms they had before.

I could understand if HELOC approval locked in some duration under which the bank couldn't back out, but I don't see why banks would grant such optionality either.

Anecdotally, I had a $50k HELOC on a property once. I wanted to avoid something happening like the bank being able to freeze withdrawals from the account. So, I withdrew all of the money from the HELOC and put it into a personal account. The interest rate was around 2.75%, so I was only paying around $100-150 per month. It was a huge lifesaver when I was in a tough situation.

HELOC's tend to have a time period attached to them of something like 10 years that you can draw from it before you apply for another one. I haven't heard of banks closing an open equity line before though.

Wow. That sounds insane. There is so much that can happen in ten years that can make the credit/loan a much worse idea. Aren’t there still caveats in that option period about eg income, prime rate, LTV, etc?

The rate fluctuates up and down with the prime rate (usually prime + 1%).

The risks for the bank are the same risk with any type of loan. The difference here is that it’s secured against the home. I believe the max limit on it is 80% of the equity that you have in the home. Applying for an increase is the same as applying for an entirely new loan.

Just think about how many things can happen over a 15-30 year mortgage.

Right, I get that lots can change over the course of a regular mortgage, but that's usually accounted for by the down payment/LTV. Plus, they have already committed all the capital for it and it's a known quantity. For a LOC, it's just the option to draw, and anything from 0 to 100% of those dollars could be exercised at any time, when it may be harder for them to raise capital. Plus, I've heard stories -- albeit from the UK -- of HELOC exercise being denied once their employment/income change.

I think you’re missing the mark slightly by focusing on housing prices alone. There are two other key variables here.

One is incomes. It’s quite plausible that defaults in a year or three will turn out to be extremely uncorrelated with today’s credit scores.

The second one is interest rates, which are spectacularly low.

Those two things combined make it very hard to predict how much profit a line of credit type product will be able to produce.

I think it is a big deal for a major bank to state that they are ceasing ALL HELOC origination. That's a gigantic statement of their future expectations on home values. You have to believe that their perception of risk is extreme right now in order for them to make such a move. HELOC lending is profitable: they are giving up profits because they worry about being wiped out.

The difficulty with things like credit scores is that they are a trailing measure; all consumers are suddenly a much bigger risk than they were in January, even if they've still got a great credit score (based on history). WF is probably concerned that they can't appropriately price the risk, or that the price they'd be comfortable with would be too high to bother (for publicity, for actual business volume, or some other regulatory limit on absolute interest rates).

Obviously a fall in home prices would exacerbate things but, yeah, the main issue would seem to be that there are probably a whole bunch of people with solid credit worthiness in December (and who are still employed) rushing out to get HELOCs so that they have a cushion if things go south. Which is rational behavior for a lot of people given their likelihood of, say, having a job in a couple months time is also less than it was in December.

I'm a bit late in reading and responding to this, but do you reckon the average person is aware that they can acquire a HELOC as a technique to whether a hypothetical financial storm?

Nah. They're still issuing mortgages and refis. HELOCs are specifically for home improvement or other cash infusion. HELOCs have been going out of style for a while. Borrowers have considered them risky since the last recession, so the market has narrowed to less attractive customers.

Yeah it’s basically a huge personal loan. Wouldn’t put them in the same category as mortgages at all.

It's variable rate, but it's not necessarily as restricted as is being implied. And you can have, say, an interest only period for 10 years and then a 15 year period to pay back, which is not that different from a 30 year mortgage.

Wells Fargo probably has no confidence in their ability to judge whose job is secure right now. Some lenders might be making loans because they have some specific knowledge.

I think home values are not the point, and all real estate is local, so there is no national bubble. People just want to babble about bubbles because that's all they learned from 2008 is to repeat the word. Or they live in some crazy place like SF or Vancouver.

> They have plenty of money. They have lots of smart people (insert your "stupid banker" joke here) working for them. They have lots of highly-paid analysts that make these decisions.

People also said the same thing about Washington Mutual. And about Bear Stearns.

https://en.wikipedia.org/wiki/Washington_Mutual

Could this just be a political power play to pressure the US gov not to pass any mortgage forbearance, forgiveness, or similar measures?

> “ Remember that Wells Fargo is the 26th largest corporation in the world. They have plenty of money. They have lots of smart people (insert your "stupid banker" joke here) working for them. They have lots of highly-paid analysts that make these decisions. These are not spur-of-the-moment, panic-induced decisions.”

This is so comically untrue. Giant companies with forcefields of cash, lobbyists and corporate analysts make stupid panic-based decisions all the time. There are chaotic political battles, unilateral decisions made because one executive had a pouty fit over what another executive did, huge layoffs, price changes, project shutdowns, all based on emotions, political favors, vendettas, etc.

It’s the rule. The clean, well-supported decision that came from analysts with statistical rigor is the exception by far. The larger and more bureaucratic the company, the more extremely tilted towards politics it becomes.

These decisions are rarely punished by the market due to regulatory capture, bailouts, outright fraud, etc. which essentially occur continually for most large companies with no meaningful consequences, even when these acts are completely overt and public.

I find your position compelling, but your post would be better with an example of those overt and public acts.

> by being the largest Home Mortgage provider in the US (by dollar value), with $126B in home loans

May I mention how absolutely insane is the richest person has more wealth than that?

Why do you consider that insane? It seems bizarre to view inequality as inherently bad, as opposed to a more moderate view that inequality due to government-sponsored monopolies or from influencing politicians to make absurdly favorable deals in exchange for personal kickbacks, etc is bad.

That extreme inequality is inherently bad is not a "bizarre" view. It's a very common one. You're living in a filter bubble if you think otherwise.

Why should "bizarre" views necessarily be uncommon? I think you're assuming a definition of the word based solely on frequency and the other person is not.

You're not approaching a discussion in an honest, open-minded way if your opener is that the opposing widely-held viewpoint is "bizarre". It's not worth engaging with people who argue like that, because they're demonstrating at the outset that they can't be reasoned with and are condescendingly dismissive of other people's viewpoints. It's not the frame to start a discussion with at all; it's just getting in a cheap shot. Saying a view is "bizarre" is not valid argumentation anyway; it makes no substantive counterclaims. It's just subjective name-calling.

Well, whether it's subjective name-calling depends on whether you substantiate it in some way. If it's a contradiction in terms, then name-calling is not the issue. And if it isn't, it might be possible to defend it.

I think there's some ambiguity in the idea that something people repeat is actually a "widely held viewpoint".

Saying it's bizarre seems to me to be standard shorthand for "if you really think about the implications, which people usually don't".

So-called "ideas" or "viewpoints" are more fit in an evolutionary sense the less people think about them while transmitting them.

> Saying it's bizarre seems to me to be standard shorthand for "if you really think about the implications, which people usually don't".

Catching up here (original commenter). Your take is spot on as to what I meant. (Probably my fault for being unclear)

Many studies have shown that inequality is bad for society irrespective of the overall absolute wealth of the society.

One saving grace of inequality, which I think doesn't get enough love, is that fractional trillionaires are spending lots of money right now to get humanity into space. The governments can't do it. Apollo was an off-by-one success, followed by decades of failure. Boeing used to do this contracting work, now they can't build jets, can't build tankers, can't build rockets, and can't build crewed orbital vehicles. Blue Origin and SpaceX are kicking the * of the US governmental space development effort, while taking the cash the US spends on access to space. Without those fractional trillionaires, we'd be stuck with leaky Boeing rockets sending crews to their deaths.

I’m glad to see that a major bank isn’t taking unnecessary risks. Maybe this time won’t be a repeat of what happened in 2008.

Wouldn't that sort of bet against home values include pausing new mortgages as well? This signal may be something else.

Conforming mortgages get a federal guarantee.

ok, pausing new non-FHA mortgages...

Happened a month ago: https://www.reuters.com/article/us-health-coronavirus-wells-...

Is this just Wells Fargo hitting a capitalization max or more wide spread across the industry

Definitely a bit of the former, but JPM and a few other big players have made similar moves.

Although, somehow, I’ll bet my property taxes will stay the same.

Really appreciate the context, thanks.

Didn't they lose a pretty significant suit because their salespeople were denying mortgages or significantly adjusting their offered terms to black people based on their race?

I'm not convinced that their strategy is necessarily sound and unbiased or representative of the knowledge base they command.

EDIT: My apologies, I was mistaken. They settled for $175 million. You can remove your downvotes now.

https://www.startribune.com/wells-fargo-pays-175-million-in-...

https://consumerist.com/5283290/affidavits-on-how-wells-farg...

Reply on news.ycombinator.com