NEW YORK (Reuters) - As more Americans struggle to make payments on their homes, Wells Fargo & Co. is joining other lenders in introducing a credit card to help people pay down their mortgages faster.
The No. 2 U.S. mortgage lender’s Home Rebate card joins cards offered by Citigroup Inc., Bank of America Corp., GMAC and Countrywide Financial Corp., among other lenders, to help homeowners reduce mortgage principal. Wells Fargo described its card and its terms on its Web site.
“It’s a relatively new trend, and a novel concept,” said Curtis Arnold, a consumer advocate who founded CardRatings.com of Little Rock, Arkansas.
“If you’re blowing your budget to pay down your mortgage, that doesn’t add up,” he added. “If you use a card responsibly, it can be an effective way to pay down mortgage debt.”
Wells Fargo, the fifth-largest U.S. bank by assets, has largely avoided turmoil afflicting many mortgage lenders as homeowner delinquencies and defaults soar, especially among “subprime” borrowers with weak credit histories.
The card launch also comes as consumers face a blizzard of choices for so-called “rewards” cards.
“Everybody has a ‘hot button’ for rebates — for some, it’s airline miles, for others, it’s hotels or gas,” said Peter Ho, a Wells Fargo vice president, in an interview. “Our goal is to make sure our customers financially succeed.”
San Francisco-based Wells Fargo said it made $398 billion of residential real estate loans last year.
According to the bank’s Web site, the Home Rebate card lets customers reduce $1 of principal on their mortgages for every $100 they spend, with automatic reductions in $25 increments. Spending $15,000 would lower principal by $150, for example.
The Mortgage Bankers Association said that for the week ended March 30, the size of a typical U.S. home loan was $247,200, and the average rate on a 30-year fixed-rate mortgage was 6.13 percent.
According to a calculator on Wells Fargo’s Web site, a homeowner who takes out such a loan and spends $2,500 a month on the Home Rebate card would pay off the loan 16 months early, and save $24,192 over its life.
Total payments including interest would fall to $516,821 from $541,013.
“It’s important to evaluate how the card fits into one’s financing plan,” said Scott Strumello, an associate at Auriemma Consulting Group, a Westbury, New York card consultant. “It may not make a huge difference to someone far into a mortgage.”
The rate on card purchases and balance transfers ranges from 0 percent to 5.9 percent for six months, and thereafter from 14.9 percent to 25.5 percent, Wells Fargo said on its Web site. Some loans are not eligible, including “reverse” and “piggyback” mortgages, the bank said.
Citigroup’s Home Rebate Platinum Select MasterCard also lets homeowners reduce mortgage principal by $1 for every $100 spent. The rebate can also apply to mortgages issued by lenders other than Citigroup.
Others card with similarly sized rebates include Bank of America’s Ownership Rewards card and the GMAC Mortgage Equity Rewards MasterCard, the respective companies said. GMAC is owned by a consortium led by Cerberus Capital Management.
Meanwhile, a Countrywide Rewards Platinum Visa cardholder can redeem 2,500 points for a $50 cut in mortgage principal.
Countrywide is the largest U.S. mortgage lender, and issues its card via JPMorgan Chase & Co.’s First USA unit.
Consumers are seeking “ways to use spending to automate and accelerate savings,” Chase spokesman Paul Hartwick said.
Ho, the Wells Fargo executive, said the Home Rebate card may advance his bank’s strategy of selling more products to its customers — known as “cross-selling” — including in the 27 states where it does not have branches.
He said a majority of subprime borrowers would “probably not” qualify for the card, though some might. “Our underwriting models take into account a number of factors, including our customers’ relationship with Wells Fargo,” he said.
Arnold of CardRatings.com urged consumers to shop around. “One percent is not a big rebate,” he said. “You will probably come out ahead if you find a more aggressive rebate program.”