By The Associated Press
BOSTON — No need to panic, financial advisers are saying in the wake of Wells Fargo and Bank of America leaving the reverse mortgage business. Homeowners who have reverse mortgages with those banks have no reason to worry, as the banks will continue to service those loans.
What’s more, homeowners who might be seeking a reverse mortgage will still have at least one large provider — MetLife Bank — and plenty of small independent firms from which to choose.
But though there’s no reason to panic, there are still plenty of questions to be answered. What does Wells Fargo and Bank of America leaving the business mean for the reverse mortgage product and the industry? What does their departure say about the future direction of housing prices in the U.S.? Do Wells Fargo and Bank of America have a crystal ball that others don’t? And what should folks who might need or want reverse mortgage do now or in the future?
By way of background, reverse mortgages are — in the big scheme of things — a relatively new product in the world of retirement income, and there’s much confusion over how they work.
Here’s what the national trade group, the National Reverse Mortgage Lenders Association, says about them: “Reverse mortgages are available to seniors 62 years old and older with significant home equity. They are designed to enable elderly homeowners to borrow against the equity in their homes without having to make monthly payments as is required with a traditional ‘forward’ mortgage or home equity loan. Under a reverse mortgage, funds are advanced to the borrower and interest accrues, but the outstanding balance is not due until the last borrower leaves the home, sells or passes away. Borrowers may draw down funds as a lump sum at loan origination, establish a line of credit or request fixed monthly payments for as long as they continue to live in the home.”
Those who have a reverse mortgage originated by Wells Fargo or Bank of America have no need to worry, said Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association. “All current Wells Fargo reverse mortgage borrowers will continue to be serviced and funds made available,” Bell said in a statement. Ditto those who had one with Bank of America.
In a statement, Wells Fargo said it was leaving the reverse mortgage business in part because of “unpredictable home values.” And Bank of America said in February that the staff and resources used by the operation were needed in other parts of the company.
Experts, however, said Wells Fargo’s departure was less about falling house prices and had more to do reputational risk and the business line’s contribution to company’s revenues and profits. “To really understand what caused Wells Fargo to leave the industry, you also need to understand how small their reverse mortgage division really is,” said Colette A. Gray, a senior loan officer and reverse mortgage specialist at Home Safe Reverse Mortgage. “With a 26 percent share of the market and a No. 1 position in the industry, their reverse mortgage division represents only a tiny 1.2 percent of their overall retail volume. The potential damage to their reputation in foreclosing on the comparative few in technical default is overwhelming. It simply isn’t worth the risk to them.”
One major bank
With Wells Fargo and Bank of America gone from the business, there will be just one major bank — MetLife Bank, a part of MetLife Inc. — and lots of smaller independent players in the business. “Homeowners interested in a reverse mortgage will still have plenty of providers from which to choose,” said Bell. “Wells Fargo’s departure means that a significant portion of market share will be re-distributed among other participants in the reverse mortgage business.”
And that redistribution could be good news for providers and customers alike. As one member of a group focused on reverse mortgages on LinkedIn said: “It is a shame that most of ‘the big guys’ are abandoning the reverse product but at least for those who still have outlets to place their loans, perhaps the playing field will become more level again.”
And the fact that the providers are small should be of no concern to homeowners seeking a reverse mortgage, said Jeff Lewis, the chairman of Generation Mortgage Company. “The product is government-insured, so consumers should not be concerned about whether their provider is a large institution or not,” he said. “Actually, they can continue to expect to get more personalized service from smaller organizations, as they have in the past.”