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