Two years after HELOC pullback, JPMorgan again eyes the business

JPMorgan Chase is considering offering more home equity lines of credit, a top executive said Monday, roughly two years after the megabank restricted the sometimes risky product.

The comments by Marianne Lake, co-CEO of JPMorgan’s consumer and community banking unit, came at a time when rising interest rates have sparked higher borrower demand for home equity lines of credit, or HELOCs. Volume increased 31% year over year in the fourth quarter, according to TransUnion data.

“It is obviously a product that is gaining in appeal right now, and we are working on that,” Lake said during JPMorgan’s investor day event. “We’re working on it. It’s definitely appealing in this rate environment.”

JPMorgan may not make HELOCs available to more customers until the first half of 2023, at the earliest, according to a source familiar with the situation.

HELOCs, which allow homeowners to tap into their home equity without refinancing their first mortgage, fell out of favor during a long stretch of persistently low interest rates. As long as rates remained low, it was typically more advantageous for borrowers to take cash out of their homes as part of a refinancing, as opposed to taking out a second loan.

But mortgage rates are now rising, and many homeowners would prefer not to disturb their low rates by refinancing their entire mortgage.

Demand for HELOCs is also getting a boost from soaring home prices, as many homeowners look to unlock some of that value. Home prices were up 19.8% in February from the same month last year, according to the S&P CoreLogic Case-Shiller index. The Phoenix and Tampa, Florida, markets recorded year-over-year price gains of more than 30%.

Yet JPMorgan has so far been left out of the HELOC boom. As of March 31, the carrying volume of its outstanding HELOCs was $17.6 billion, which was down 20% from a year earlier and down nearly 37% from March 2020, shortly before the bank began restricting the product to existing private bank customers only.

JPMorgan’s move two years ago, which was meant to be temporary, came as the U.S. economy shuttered and unemployment soared at the onset of the COVID-19 pandemic, sparking fears that house prices would decline. Several other banks, including Wells Fargo, followed suit.

On Monday, Lake pointed out how problematic HELOCs were during the 2008 mortgage market meltdown. After U.S. home prices plummeted, many homeowners were either unable or unwilling to continue making their mortgage payments.

Lake indicated that JPMorgan will tread lightly if it does decide to offer HELOCs again more widely.

“Remember, home equity was a huge piece of the problem in the last crisis and generated a significant amount of our losses,” she said.

CEO Jamie Dimon and other top JPMorgan executives spent much of the bank’s closely watched investor day defending company expenses that are expected to total $77 billion this year. 

The spending spree, which includes $6.7 billion earmarked for technology upgrades, is billed as an investment in growing JPMorgan’s dominance from retail to corporate banking. 

“We think we have huge opportunities, and we’re going to try to grasp them, which is what I think you want us to do,” Dimon said.

The nation’s largest bank by assets increased its guidance Monday for net interest income, which could be helped by an expansion of products like HELOCs. The new guidance is for net interest income of roughly $56 billion in 2022, up from a full-year estimate last month of $53 billion.

Dimon nodded toward a warning he issued in April about “storm clouds” ahead, including a possible recession, stubbornly high interest rates, slow growth, and the unfolding violence in Ukraine.

At the end of Monday’s event, Dimon hit a slightly more optimistic note, saying that the incoming risks could pass. 

“There are storm clouds, and we hope they mitigate,” he said. “These things that we are seeing are as serious as you may see in your lifetime. They may mitigate, as opposed to, ‘It’s a tsunami,’ which is not going to mitigate. That was what happened in ‘08, and it had to work its way through.”