Bank of America Reverse Division is Profitable, Still Decides to Close it Down

Days after Bank of America announced it was exiting the reverse mortgage business, there continues to be speculation over why the company made the decision to leave the industry.

Despite the bank telling RMD in a statement it’s closing the operation to focus on its core mortgage business and move the operational unit into other critical areas serving customers, some aren’t buying it.  Guy Cecala, publisher of Inside Mortgage Finance told the Charlotte Observer that Bank of America is trying to minimize its exposure to potential lawsuits.

“You’re dealing with the elderly, you’re talking about taking away their homes when they die,” Cecala said. “That’s a bad set of variables there.”

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A spokesperson for the bank told the publication that the decision wasn’t related to any ethical qualms about reverse mortgages.  The bank has worked with industry groups to put in safeguards to protect consumers, he said, and is “fully aware that it’s a very sensitive population.”  The reverse mortgage unit is profitable, he said.

While Bank of America is the second largest originator in the country, other leading lenders remain committed to the industry.  A spokesperson for Wells Fargo — the largest retail lender — told the Observer it’s “continuing with responsible reverse mortgage lending,” and that the loans provide “a number of benefits for older homeowners.”

A spokesperson for MetLife Bank told RMD the company remains committed to reverse mortgages and continues to believe that the product positively affects the lives of many thousands of older Americans. “We look forward to working with seniors and their families to help them determine if a reverse mortgage can help them achieve their goal of a more comfortable retirement,” he said.

Reverse Mortgage Off Menu at BofA

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  • If you haven’t read the article linked below RMD’s write up, you should, if only to see another ‘reporter’ lacking even a vague understanding of reverse mortgages. The bank takes the house? Good Lord. Perhaps you’d like to drop her an email, as did I.

  • “You’re dealing with the elderly, you’re talking about taking away their homes when they die,” Cecala said. “That’s a bad set of variables there.”

    Once again, misinformed reporting at it’s worst. As most of us know, when the borrower passes away, the heirs can sell the home or pay it off themselves and keep any “profit” for the borrower’s estate. I can’t imagine one lender or reverse mortgage investor out there that would interested in rushing to foreclosure to take title to a property in one of the worst housing markets in recent history.

    • You and I have been in the business how long? You are right this will never end. Every week I come across someone with this misconception because of terrible reporting. This week alone it was a client and then a financial advisor. Thankfully, with these I can correct the misconception. Although, I wonder how many are out there that we don’t get the opportunity to correct. I am sure because of the terrible reporting that will never stop this will always be a misconception.

  • Perhaps even worse than the lack of understanding of reverse mortgages Guy shows in his statements in the body of the article is his lack of understanding of Forbes 100 decision making. Guy obviously has little if any experience with the due diligence which is completed during the consideration of all but the smallest acquisitions by a Forbes 100 company. It is not the termination reputation risk that the acquisition team would not have come up but most likely the technical default potential risk. While those risks may have weighed in the current reverse mortgage closure decision, it seems the decision was based on much wider criteria.

    To be clear the problem in the B of A mortgage division runs deep. Their lingering contingent obligations for Countrywide mortgages could end up being massive. B of A can easily step back into the reverse mortgage business at almost any point. What they need right now is to regroup and improve their forward mortgage operations. If their reverse mortgage operations had fallen apart, there would be little if any impact on B of A profits or stock values; however, the same cannot be said about their other mortgage operations. Plain and simple, this was an internal reorganization to recover fundamentals and address contingent liabilities.

    Even though the results are miserable for our peers at B of A, senior management is doing the right thing overall. The legacy of Countrywide is not the shining high point in the career of Ken Lewis he thought it would be but it is one that B of A will be dealing with for at least most of the next decade. Putting it off any longer would be inviting huge financial problems. The reorganization is a smart move but it is a shame that one of the best reverse mortgage groups had to suffer as a result.

    At every reverse mortgage firm I have been with, Seattle Mortgage or Bank of America have provided critical support. Their loss will be a direct loss to me. Here is hoping all at B of A will land on their feet and will be participating in the reverse mortgage industry again in the not too distant future.

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