Last week, Wells Fargo announced that making reverse mortgages would no longer be feasible thanks to changes in the economy. It was the second major lender to leave that sector of the mortgage business – the first being Bank of America. With these two lenders out of the game, that puts 43 percent of the reverse mortgage business up for grabs, although it is uncertain if anyone will want it. Reverse mortgages allow seniors 62 years of age and older to tap into their home equity by allowing the bank to make payments on their home and pay them a monthly stipend. The homeowner is still responsible for property taxes and homeowner’s insurance. However, since lenders cannot assess homeowners’ ability to maintain these two obligations and with property taxes on the rise even as property values fall, BofA and Wells have decided that the gamble is too risky for the banks. Currently between 4 and 5 percent of active reverse mortgages are in technical default, which means they have failed to pay property taxes, insurance or both.
Furthermore, when the lender does gain possession of the property upon the death of the homeowner (which usually happens, although the estate does usually get a grace period in which they can pay off the loan), there is no guarantee that the lender will be able to sell the property and recoup the money loaned out – much less make a profit. Greg Gwizdz, a national home sales manager for Wells, cites difficulties gauging home values as a major part of the decision to exit the market.
Would you make reverse mortgages in today’s market?
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