When home values were going up like a rocket, lenders often marketed reverse mortgages as a gateway to financial freedom. Now, some of them want out.
Wells Fargo says it will stop offering reverse mortgages as of June 30. Bank of America stopped offering them in February. The two lenders accounted for about half of the reverse mortgage market.
Why are lenders pulling out of reverse mortgages? Will other lenders follow suit? Should you hurry and get a reverse mortgage while you can?
Let's start with the easier question, the why. The simple answer is money. With declining home values banks believe they take a greater risk when they lend to seniors based solely on the borrower's age and equity.
Reverse mortgages allow homeowners who are 62 or older to borrow against the equity in their homes without having to make monthly mortgage payments. The balance of the mortgage accrues interest over the years but the loan is not due until the borrower dies or sells the house.
Borrowers are required to keep paying their property taxes and insurance. If they stop paying, the loan is considered in default.
The reverse mortgage program "was designed in a different economic time," says Wells Fargo.
The lender says its decision to get out of the reverse mortgage market "was made based on today’s unpredictable home values along with the restrictions associated with reverse mortgages that make it difficult to determine seniors’ abilities to meet the obligations of homeownership and their reverse mortgage, e.g., payment of property taxes and homeowners’ insurance."
Believe it or not, some lenders have complained about the Department of Housing and Urban Development's regulations on reverse mortgages, claiming they are not allowed to enforce more stringent underwriting to determine the senior borrower's ability to pay for the home's basic expenses. Yes, these are some of the same lenders who were lending to anyone who had a pulse during the boom.
Harold Bremser Jr., a loan officer at iReverse Home Loans in Cooper City, Fla., thinks one reason Wells Fargo may be pulling out of the reverse mortgage market is they don't want to deal with the bad press of having to foreclose on grandma and grandpa.
"In my opinion, it has a lot to do with public relations," says Bremser.
Whatever the reason may be, will other lenders follow suit and does this mean it will become more challenging to get reverse mortgage? I asked a couple of experts.
Peter Bell, president of the National Reverse Mortgage Lenders Association, says "reverse mortgages remain readily available to consumers who need them. The Wells Fargo's departure means that a significant portion of market share will be redistributed among other participants in the reverse mortgage business, and there is currently plenty of capacity across the country to meet demand."
"I don't think it's going to have that big of an impact," he says. "If anything, I think the smaller lenders will see an opportunity here to increase their market share."
OK, so I rephrased the question.
If you were on planning on getting a reverse mortgage in a year, would you hurry and do it now instead of later?
"Personally I would probably do it now," Bremser says. "Home values are still dropping, so a year from now will probably receive less money … and will the program be here a year from now? I think so, but no one knows for sure."
Better safe than sorry, I guess.
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