Several days ago I mentioned that Wells Fargo pulled out of the reverse mortgage market. They will continue to service existing loans, but no longer source new loans. Wells Fargo represented about 25% of the reverse mortgage market.
Bank of America very quietly pulled out of the reverse mortgage market the prior week. Together, Wells Fargo and Bank of America represented a significant 43% of the reverse mortgage market.
Reverse mortgages allow seniors 62 years of age and older to tap into their home equity by allowing the bank to make payments on their home and pay them a monthly stipend. The homeowner is still responsible for property taxes and homeowner’s insurance. However, since lenders cannot assess homeowners’ ability to maintain these two obligations and with property taxes on the rise even as property values fall, BofA and Wells have decided that the gamble is too risky for the banks. Currently between 4 and 5 percent of active reverse mortgages are in technical default, which means they have failed to pay property taxes, insurance or both.
Additionally, when the lender does gain possession of the property upon the death of the homeowner (which usually happens, although the estate does usually get a grace period in which they can pay off the loan), there is no guarantee that the lender will be able to sell the property and recoup the money loaned out – much less make a profit. Greg Gwizdz, a national home sales manager for Wells, cites difficulties gauging home values as a major part of the decision to exit the market.
It is uncertain whether other lenders will follow this trend and terminate their reverse mortgage programs. Logically, Bank of America and Wells Fargo have created an opportunity for other lenders to capitalize on their departure. It is clear that reverse mortgages are viewed as a problem area for lenders and this is unfortunate for those that would benefit by the programs.