HUD Intends to Stand by Reverse Mortgage Program, Says Ex-FHA Official

June 24th, 2011 | by Elizabeth Ecker Published in News, Reverse Mortgage, Wells Fargo | 7 Comments

Despite a tumultuous 2011 for many who offer reverse mortgages, the products are not going away, a New York Times column reported Friday.

“People certainly shouldn’t be worried,” about the reverse mortgage program, former Deputy Assistant Secretary for Single-family Housing Vicki Bott, who left her post Friday at the Department of Housing and Urban Development, told New York Times columnist Ron Lieber.

Bott’s comment represents the first words of support from HUD since industry giant Wells Fargo exited the business last week. (A request for comment from HUD was not returned to RMD as of press time).

Lieber points to industry exits from big banks Bank of America and Wells Fargo as a juxtaposition to the fact that “reverse mortgages will help millions of people stay in their homes and pay for a variety of retirement expenses in the coming decades.”

But, he writes, both turn out to be true.

The sheer numbers make the product’s use inevitable, Jeffrey Lewis, Generation Mortgage CEO told the New York Times. The savings of the current baby boom population will not be enough for many of them to retire.

The current risks to large banks, however, relating to the pending foreclosures on seniors with reverse mortgages who have failed to meet tax and insurance obligations, have made reverse mortgages a tough sell.

“Banks are really concerned about their headline risk and brand risk,” Torrey Larsen, president of Security One Lending, told the Times. “They don’t want to risk their entire franchise by foreclosing on people, let alone on grandma.”

However, Lewis presented a different view on the situation.

“The idea of reputation risk is such a canard in the hands of these institutions that I don’t even know where to start,” said Lewis in the article. “They took the very interesting strategy of making the government the scapegoat for them deciding to abandon a market that desperately needs them.”

The column notes Wells Fargo’s exit from the industry along with “thinly veiled criticism of the fact that HUD was not yet allowing it to do more traditional underwriting,” as “odd,” given recent indication from HUD that the department is working to develop guidance surrounding a financial assessment for borrowers.

Finally, the column poses the question: “who in the market needs the big banks the most—the customers or the giants’ former competitors?”

Read the New York Times column.

Written by Elizabeth Ecker

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Anonymous

Unlike many in the industry, I do not tow the line that HUD needs to speak out in support of the program. In this situation the silence of HUD is correct and best.

It is, however, very encouraging to read the words of support from Mrs. Vicki Bott. As a former but recent executive at HUD, her words are very appropriate and very helpful. Privately, many of us hoped she would do this.

Mr. Torrey Larsen is absolutely right that banks are VERY concerned about the possible lash back from foreclosing on grandmas.

I am also very empathetic with the recent statements of Mr. Codel at Wells Fargo in the New York Times. As a former CFO at a Wells subsidiary, he spoke his clear feelings about a mortgage product which has lingering contingent liabilities especially when a department of government prohibits Wells Fargo from mitigating those potential losses in a manner permitted to it on ALL other types of mortgages. As stated many times before, a HECM is first and foremost a non-recourse mortgage, period.

No one other than Wells Fargo senior management can say with complete confidence that reputational risk and potential loss from contingent liabilities did not play at least some role in the decision of Wells Fargo to discontinue reverse mortgage operations. But in most decisions of this nature, reasons of this nature are rarely the principal ones. These two reasons provide the most graceful, public way for Wells Fargo to bow out of the industry. Those not familar with the actions of Forbes 100 entities find this tactic hard to take. Wells Fargo senior management owes no one any further explanation except perhaps some stakeholders, regulators, auditors, and others who actually have a legal or other right to know.
Anonymous

Vicki Bott starts at Wells Fargo on Monday. Seems like wierd timing since she said she was leaving HUD for personal reasons.
The_Critic

wealthone,

That is part of the odd relationship between government and business. You see it with the military and weapons and other military contractors. It happens with prosecutors and law firms as well.

Vicki will no doubt eventually lobby HUD on behalf of Wells if that is where she ultimately ends up staying. Meg Burns did something similar a few years back but quickly found out that government was where she belonged.
tom mastromatto

They have no choice…its now a Social responsibility!
The_Critic

Tom,

That is not a novel argument but right now the value of the program may not be seen as it has been in the past. As long as the program stays self-sustaining, we will probably be OK.
The_Critic

Tom,

That is not a novel argument but right now the value of the program may not be seen as it has been in the past. As long as the program stays self-sustaining, we will probably be OK.
The_Critic

Tom,

That is not a novel argument but right now the value of the program may not be seen as it has been in the past. As long as the program stays self-sustaining, we will probably be OK.

HUD Intends to Stand by Reverse Mortgage Program, Says Ex-FHA Official

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