While the slow disappearance of reverse mortgages from major lenders’ portfolios isn’t a big job-killer, it could spell trouble for the 20-year-old financing option that senior citizens have been able to use to carry them through retirement.
Bank of America pulled out of the reverse mortgage business a few weeks ago, and Wells Fargo recently joined them by shuttering its program.
Reverse mortgages allow those over the age of 62 who have significant equity in their homes to borrow on that equity without fear of foreclosure. Instead of making payments on a mortgage, the bank pays the borrower either in installments, in one lump sum or opens up a line of credit. The loan doesn’t have to be repaid until the homeowner moves permanently or dies.
It has historically offered relief from poverty for retirees who have little or no savings but who have valuable sums invested in their homes.
Together, Bank of America and Wells Fargo accounted for 43 percent of all reverse mortgages issued nationally. Bank of America has ATMs in Colorado, but no bank branches.
Steve Helbing, president of the Colorado Springs Wells Fargo branches, said the end of his bank’s reverse mortgage program doesn’t make a very significant impact on its practices here.
“We only had one or two people originating reverse mortgages,” said Helbing, who added that the positions will most likely be folded into some other field of lending or mortgage services.
Nationally, Wells Fargo had more than 1,000 employees working in its reverse mortgage division. Reverse mortgages accounted for 2.2 percent of the national bank’s retail mortgage volume.
Wells Fargo dropped the reverse mortgage program because of the unpredictability of home values and the challenges presented by processing the loans and the overall unpopularity of the program.
“There just wasn’t a lot of demand for it,” Helbing said “Most people who have a lot of equity in their homes are seniors and there’s just such an aversion to debt right now.”
He said he believed the loans grew unpopular through a lack of understanding about how they work and a stigma against acquiring new debt at the end of one’s life.
Fannie Mae stopped backing the reverse mortgages in 2010. The United States division of Housing and Urban Development, however, still provides Ginnie Mae backing for the mortgages.
“Banks have just made their own business decisions that this is an economic risk they don’t want to take,” said Rick Garcia, the regional director for HUD. “We don’t require these lenders to make these kinds of loans.”
He said the decline in the popularity of the reverse mortgage likely comes as a result of falling home values.
“These lenders have to bear in mind, when they’re arranging the loans, the future equity gain,” Garcia said. “The risk today is that those properties aren’t going to continue to gain equity at the same rate or that they aren’t going to gain at all.”
El Paso County Public trustee Tom Mowle said he has seen some homes refinanced with reverse mortgages come through his office in foreclosure. He said he had no way of researching how many reverse mortgages were foreclosed on here, but that they did occasionally happen.
If home values dipped and owners or their heirs weren’t able to sell the properties after the owners either moved permanently (perhaps to long-term care facilities) or died, they would have been foreclosed on.
While larger banks are exiting the marketplace, there are a number of smaller lenders still offering reverse mortgages. In Colorado Springs, those lenders include the Air Force Academy Federal Credit Union, Mortgage Solutions of Colorado, Peoples Mortgage Corporation and ENT Federal Credit Union, according to HUD’s database.
Roy Clennan, president of Freedom Financial Services, said his company also continues to offer reverse mortgages.
“There’s a lot of medium and smaller players our size who are still offering them,” Clennan said. “They will get more expensive for the customer as the backing goes away though.”
It’s possible the product will become a thing of history.
The mortgages have become less popular and are highly time-intensive and require a lot of extra labor and special counseling for the homeowner, Clennan said. The government has also changed the way it backs the mortgages and has changed what is required of lenders, Clennan said.
“At one time it was worth going through the extra effort to offer them,” Clennan said.
And it could be again, if private money gets behind the mortgages again.
Seniors interested in pursuing reverse mortgages still have options and are encouraged to find resources on the HUD.gov web site, where they can find a list of housing counselors who will guide them through the process.