The announcement by Wells Fargo of their intention to exit the reverse mortgage business created a shockwave through the industry, raising concerns of many, and has others already looking for the inherent opportunity created by the move. Coverage of the event continues to appear in media outlets as Wells Fargo reaches their final day of generating new applications.
Media coverage of this event can have a strong impact on how this change is perceived in the industry and public at large.Allthough media coverage of the industry and events such as this can, at times, be frustrating, it is important that industry participants are aware of coverage in order to prepare to positively and proactively respond to client questions or concerns about the coverage.
The following is a summary of some of the coverage regarding the Wells Fargo announcement:
"The problem, according to the industry, is that under program guidelines, lenders don't assess an applicant's financial position in the approval process. Nor do the rules include letting a lender determine whether a lump sum or fixed payments would be better; that decision is left solely to the borrower."
The exits do not create a need to panic, B of A and Wells will continue to service their loans. It also opens the door for a more level playing field among competitors in the reverse mortgage space. For Wells, "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.”
Taking perspective for a financial planner, this article suggests that the HECM program needs to be changed in order to meet the needs of the large number of retirees who are not fully financially prepared for retirement. Without providing any specifics, it says that the program must be changed to make it attractive to lenders again.
Borrowers should not have afraid of the exit, as the two big banks will continue to service the reverse mortgages they hold. The exits do, however, put greater imputus on HUD to complete rules related to assessing a borrowers ability to maintain their responsibilities.
Wells Fargo's exit is just another "grim sign of the declining value of homes in America." The decline in home valuse has not only pushed the large banks out, but is also decreasing demand for the reverse mortgage product in many states.
The exit by Wells Fargo and Bank of America has thrust MetLife Bank in to the spotlight as the defacto industry leader. Bloomberg suggests that MetLife is prepared to embrace their role as reverse mortgage are a natural complement to their insurance business.
Stating that reverse mortgages have beecome a vital retirement tool for thousands of Baby Boomers, the article suggests that HUD regulations may have become too honerous, leading to the exit by Wells Fargo and Bank of America
American Banker obstained a leaked internal email regarding Wells Fargo's discussions leading up to the decision to exit the reverse mortgage industry. "The last straw in our decision was the recent HUD decision to require servicers to initiate foreclosure on the Senior Reverse Mortgage customers [who] could not pay their taxes and insurance," said the email written by Phil Bracken, executive vice president for Wells Fargo Home Mortgage. "When a product or program creates more reputation risk than value … well … you get the picture."
Pointing to the fact that Wells Fargo and Bank of America represented 43% of the reverse mortgage market, the NY Times suggested that borrowers may find it more difficult to get a reverse mortgage. The decline of the housing market, along with the lack of a financial assessment for borrowers has made the produce a "riskier proposistion."
In a statement from organization President Peter Bell, NRMLA expressed confidence in the on-going strength and viability of the HECM product as it continues to evolve, highlighting the need for some type of financial assessment to ensure borrowers are prepared and able to maintain their responsibilities for tax, insurance and maintenance. "Reverse mortgages and HECM loans are readily available to seniors as an important tool to help them stay in their homes and to fund their longevity. The decision by Wells Fargo that it will no longer originate new reverse mortgage loans does nothing to change this. The HECM program remains a relevant tool and the vast need for it continues."
Stating that Wells Fargo "no longer feels comfortable making the loans to seniors," the article also comments on the oft quoted product concerns. "The products are known for having high upfront fees, and consumer advocacy groups have warned the complex loans are fertile ground for scams and deceptive marketing." Bloomberg
Bloomberg turned to a mortgage-industry consultant from Wisconsin, Terry Wakefield, to interpret the rationale behind Wells Fargo's decision. "Why be in the reverse mortgage business if the equity that you’re lending, your collateral, is disintegrating?" he said.
In summarizing the move by Wells, MND posed a question about the reasoning for the bank's decision. "Is this another "unintended consequence" of government regulation, or the preference of staying away from having the Gray Panthers picketing the home office appearing on the Channel 5 news?"
The organization which has produced biased reports on reverse mortgages used the announcement to continue their refrain that reverse mortgages carry "big risks adn come at a high cost."
"What does it mean that the largest reverse lender has exited the business?" The magazine asks a heavy handed question in the title of their article, but the content does not seek to answer it. The article primarily summarizes information from the Wells Fargo press release and following statement from NRMLA.
The National Association of Realtors relates the move to the challenges facing the real estate market, "Wells Fargo joins a growing number of banks that are getting out of the reverse mortgage origination business due to the sluggish real estate market, which has made it more difficult for banks to determine home values and how much they should lend in the reverse mortgages. Bank of America announced in February that it also would stop processing new reverse mortgage loans."
Looking at overall job cuts, this article noted that this follows an announcement that Wells Fargo also had recently eliminted 1,900 mortgage jobs nationwide.
A basic reiteration of the press released issued by Wells Fargo, the post highlighted the concern of home values increasing the risk of the product. "As part of the reverse mortgage agreement, home owners usually have to maintain tax and insurance payments on the property, and Wells Fargo expressed doubt about the numbers of senior home owners able to make those payments. It also said that falling home values had made reverse mortgages more risky."
Issued a summary of the press release from Wells Fargo.