Friday, June 17, 2011

Wells Fargo Terminates Reverse Mortgage Program

Wells Fargo has announced that it will no longer originate reverse mortgages. The bank indicates that changed economic times no longer allow for the transaction that enables senior homeowners to use a portion of a home’s equity as collateral and repay the loan out of their estate upon death. Since the repayment of the loan is based on the estate’s ability to sell the property and pay off the balance, many lenders have expressed concern that reverse mortgages will actually go underwater, making them a loss for the lender who made the loan. However, Wells Fargo has cited its main concern as homeowners’ inability to make payments on taxes and insurance – usually the homeowners’ responsibility for the life of the homeowner and the reverse mortgage. “The reverse mortgage program was designed in a different time,” explained the lender in a public statement, adding that existing reverse mortgages will still be serviced and that the banks 1,000 reverse team members would still be able to apply for other positions within the bank’s operations.
Wells Fargo was the biggest originator of reverse home loans in the United States. These loans made up 2.2 percent of the lender’s consumer mortgage volume. The bank continued to lead the market up to the point when it decided to stop making the loans, with 25 percent of all reverse mortgage loans being made through Wells Fargo.
This certainly indicates a pessimistic view of the future housing market by the bank. The bank is concerned about future values and consequently and estate’s ability to sell a home for a balance sufficient to satisfy the obligation. It is disturbing to realize that the decision was made because the bank did not feel that current home owner’s with reverse mortgages will be able to pay the taxes and insurance! This was clearly a movie to limit future exposure for Wells Fargo and it may prove to be a prudent move. However, it is also a sign of troubling economic times ahead for real estate values.

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