A new form of home mortgage debuted last week--and could be the most significant innovation in the field for more than two decades.

Dubbed the "home asset management account," the loan consists of a traditional first mortgage combined with a growing-balance equity credit line. Wells Fargo Mortgage launched the new product October 2, but other major lenders, including Countrywide Home Loans, are working on their own versions for roll-out in the coming months.

The "account" concept allows borrowers to treat their homes as the focal point of their personal finance strategies. Attached to the first mortgage at closing is an equity credit line with a maximum draw-down amount roughly equivalent to the borrower's downpayment. The line can be activated at any time by a special checking account, a platinum debit card, a toll-free telephone access line, a website, or by a visit to a Wells Fargo branch office.

The line "grows" automatically, quarter by quarter, as the borrower pays down principal. More significantly, the maximum dollar amount on the line is adjusted upward once a year to reflect appreciation in home's resale value. The appreciation is estimated by a proprietary valuation-indexing technology that screens market resale values in the vicinity of the borrower's home.

Here's how the account might work: Say you apply for a home asset management account secured by a $300,000 home. You take out a conventional $240,000 first mortgage at 6 percent. Though you don't apply for it separately, your loan comes with a $50,000 initial credit line attached--just below the amount of your downpayment. The credit line carries an initial variable rate, similar to other home equity lines in the market, but does not generate any cost to you until you activate it and pull out some money.

The variable rate can be converted to a fixed rate later on if you choose. The amount on the line can also be capped at your request, removing any temptation you might have to go on a spending spree.

A year after your closing, you get your first annual property revalution, which in this hypothetical case might reveal that your house is now worth $330,000. As a result, your available credit line now jumps to more than $80,000 ($50,000 + $30,000 + principal paydowns.)

Peter Wissinger, Wells Fargo Mortgage CEO and president, said the new concept has been under development for more than two years.

"For most families, the home is not only their haven," said Wissinger, "it is their largest source of wealth. Not surpringly, (they) want to access and control their investment just like their other investments, and want to know how it is performing."

The quarterly asset management account statements, showing principal paydowns and loan balances for both mortgages, will keep owners in constant touch with their home equity. And the easy access to cash--at tax-deductible, secured interest rates--should allow them to pay for school tuitions, auto purchases, investment, credit card balances, etc.at lower costs than they can do today.

The new loan concept definitely is not for everybody. Wells won't let you sign up for an asset management account unless you have a solid credit history, and have demonstrated yourself to be a responsible user of credit.

By turning home equity--up to or near the full market value of a home--into spendable cash with unprecedented ease, it carries an inherent and obvious danger for credit bingers. But for many others it could be a convenient new way to keep on top of, and use, the biggest financial asset they own.

Some additional details about the plan: Maximum first mortgage amount currently is $750,000; credit lines can go to $250,000. But Wells expects to raise the jumbo first mortgage limit to $1 million and the credit line limit to $500,000. On the larger balances, not all interest is likely to be tax-deductible under federal law.

The equity line portion of the account will carry a standard $75 annual fee, which is waived for the first year. There is no requirement to activate the credit line, but if a borrower closes it within the first 36 months of closing, a $500 "deferred origination" fee will be charged to the account. Platinum equity-debit cards are designed for use at most ATMs around the country.

Published: October 7, 2002

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.