With two of the nation's largest banks out of the reverse mortgage business, many homeowners who are cash-poor and equity-rich wonder if they can still get reverse mortgages.
The short answer is yes. They'll just have to look beyond the branch next door, says Jim Cory, CEO of Legacy Reverse Mortgage in San Diego.
"It is not difficult to find a reverse mortgage lender or get a reverse mortgage at all," he says. "But they are not in the big banks anymore."
Wells Fargo abruptly stopped offering reverse mortgages in late June. In February, Bank of America pulled out of the reverse mortgage market. A month earlier, Financial Freedom exited the business. Together, the three lenders had accounted for nearly half of reverse mortgage originations.
Reverse mortgages offer homeowners who are 62 or older the opportunity to convert their home equity into a loan that doesn't require monthly payments. In reverse mortgages, lenders don't get paid until the homeowner dies or sells the house, but owners are obligated to keep property taxes and insurance current or the lender can foreclose. Most reverse mortgages are insured by the Federal Housing Administration under a program known as the Home Equity Conversion Mortgage, or HECM.
Until recently, Bank of America and Wells Fargo dominated the reverse mortgage market. More than 15,600 of the 61,741 reverse mortgages endorsed by FHA in the first nine months of this fiscal year came from Wells Fargo. And more than 5,600 were from Bank of America, even though the lender stopped taking applications for reverse mortgage at the end of February.
Why banks wanted out of reverse mortgages
Bank of America says it quit offering the loans because reverse mortgages are not part of its core business. Wells Fargo says its decision was based on falling home values and challenges in assessing the homeowner's ability to keep up with taxes and insurance obligations. Industry observers say the lenders quit because foreclosing on senior citizens hurts the banks' reputation. And given that reverse mortgages represented a small portion of the lenders' business, their reverse mortgage operations were not worth the risk, time, money and effort they had to spend to keep up the operations and comply with regulations.
Lenders still offer reverse mortgages
Despite the latest departures, many lenders still offer reverse mortgages and they have had no problem filling the gap since the top players got out of the game, Cory says.
"It's a competitive industry, and there are plenty of other lenders that have picked up the additional volume," he says.