“I can’t comment publicly, but all I ask is you give me an hour,” the Wells Fargo spokesperson said to me during a brief conversation about three hours prior to the official announcement. “We want to make sure we do this right.”
After getting over the initial shock of the announcement, I was expecting some sort of explanation of why such an industry mainstay was exiting the business. But only a few hours later did I realize that “making sure it’s done right” meant blaming the most important ally of the industry… The Department of Housing and Urban Development.
If you compare the way Bank of America and Wells Fargo each made their exit announcements, they couldn’t be more different.
Bank of America said the company was dedicating resources to other parts of the bank and Wells Fargo decided blame “unpredictable home prices” and restrictions that make it difficult for seniors to meet their obligations of the Home Equity Conversion Mortgage (HECM).
As Financial Insyghts CEO Peter Atwater wrote, “to exit a business today because of ‘unpredictable values’ suggests that the decision to enter the business back in 1990 was somehow based on ‘predictable values’ then, as in Wells Fargo believed in 1990 that it could predict home prices into the future. When things work out as we hoped, the outcomes are always ‘predictable’ and when they don’t, well, we use ‘unpredictable’ as the excuse.”
Lets not forget—the Federal Housing Administration insures Wells against the losses, which makes it all even more unreasonable.
But the real kicker was the way Wells began to blame HUD in the media for its exit because of the inability to assess borrowers’ financial health.
“We are not allowed, as an originator, to decline anyone,” said Franklin Codel, head of national consumer lending at Wells Fargo in an interview with the New York Times. We “worked closely with HUD to find an alternative solution and we were unable to find one with them, which led to this outcome.”
It’s no secret the industry has been working with HUD to develop the financial assessment, with Wells Fargo playing a large role in process, according to my sources. Did HUD decide not to move forward with the financial assessment? Nope.
RMD was the only publication—thank you Liz—to ask HUD if the assessment is still in the works, and the answer is…Yes.
So why couldn’t executives hold out and help move the process forward? Big players like Wells Fargo have that ability. What drove the decision to act now instead of waiting it out?
An email that was leaked to American Banker seems to suggest the decision stemmed from HUD telling Wells Fargo to foreclose on seniors.
“The last straw in our decision was the recent HUD decision to require servicers to initiate foreclosure on the Senior Reverse Mortgage customers [who] could not pay their taxes and insurance,” the email said. “When a product or program creates more reputation risk than value … well … you get the picture.”
“The idea of reputation risk is such a canard in the hands of these institutions that I don’t even know where to start,” he said. “They took the very interesting strategy of making the government the scapegoat for them deciding to abandon a market that desperately needs them.”
It’s hard to argue with that, but what confuses me even more is why would the largest “forward” lender of FHA loans—37% market share—decide to blast HUD in the media?
“You don’t just punch the government in the nose for no good reason,” said a CEO at one of the nation’s largest reverse mortgage lenders during a conversation a couple of days after the announcement. It’s no secret that large banks have had their fair share of squabbles with the government over mortgage practices, and Wells’ decision to blast HUD feels like it’s taking a cheap shot at a government agency.
While in a statement, Wells said it “takes great pride in the exceptional work that its reverse mortgage team has done to build the HECM business over the past 20 years,” it clearly doesn’t care how it left the industry’s relationship with HUD.
Make no mistake, the industry is grateful for all of Wells’ support over the years. But blaming a government agency that has been incredibly supportive of the program over the last two decades is a horrible way to exit the industry.