Have Bank Exits Impacted Consumer’s Perception of Reverse Mortgages?

Brand trust and recognition are huge factors for seniors who are shopping for reverse mortgages, consumer advocates say, and so Wells Fargo and Bank of America’s exits from the reverse industry could have an impact on consumer perception of the product. Subsequently, the number of reverse mortgage endorsements could take a hit, if public perception wavers in the wake of the exits.

The fact that two well-known institutions have bowed out of the industry could have significant repercussions on reverse mortgage numbers, says Prescott Cole, the senior staff attorney for California Advocates for Nursing Home Reform.

“I think that it’s really going to set the reverse mortgage industry back, losing these giants, because the perception of stability and value and honesty and trustworthiness that these banks have spent hundreds of millions of dollars on over the years, trying to instill confidence in the community, is lost,” says Cole.


Wells Fargo, which commandeered 26.2% of the reverse market at the time it left the industry last month, officially attributed its exit to the inability to assess seniors’ ability to maintain the tax and insurance requirements of reverse mortgage loans. Bank of America, which was the second-largest reverse lender behind Wells Fargo, finished out 2010 with 17.8% of the reverse market share before bowing out of the business in February of 2011, saying it closed the operation to “focus on its core mortgage business.”

As for how Wells Fargo’s departure shapes consumers’ attitudes toward the reverse product, Norma Garcia, a senior attorney for Consumers Union says her best guess is that it creates uncertainty about the ability of lenders to meet the needs of borrowers.  She also wonders whether the launch of the Consumer Financial Protection Bureau as a reason for leaving the market.

Cole questions whether consumers perceive reverse mortgages as a product that’s here to stay, and Wells Fargo and Bank of America leaving the industry doesn’t do much to solidify that viewpoint, he says.  “The industry is going to be left struggling to regain the acceptance or perception that this is a mainstream product. If it’s such a mainstream product, why did the ‘big guys’ get out of it?” Cole asks.

However, he continues, there’s always going to be a demand for reverse mortgages, especially for seniors who may be cash-strapped but equity-rich.

“I don’t think the reverse mortgage market is going to collapse, it’s just going to be a different kind of growth,” says Cole, adding that the number of those who may have considered a reverse mortgage for quality-of-life enhancement will probably decrease significantly. “I think, really, for the smaller groups that were involved, they’ll do well. They’ll do better, because the people who needed a reverse mortgage will probably go down to one of these smaller institutions. But the growth overall, I think it’s going to slow down a lot.”

Barbara Stucki, Vice President of Home Equity Initiatives, agrees that reverse mortgages will continue to be an option, but consumers’ attitudes toward the product’s role in their retirement planning may change.

“There’s still some key players in the business; by having the big banks leave, the folks who are left are more likely to be specialists,” says Stucki. “MetLife [Bank] and Genworth [Financial Home Equity Access] are organizations or companies that tend to focus on the retirement security side of things. This may sort of shift the conversation to looking at this more not so much as a home loan but as retirement financing, and I think that is the way to go. The nature of the conversation may change somewhat, more than necessarily people’s willingness or ability to take out a reverse mortgage.”

Regardless of whether consumers view the product as a home loan or part of retirement financing, the fact remains that for seniors who need cash and have nowhere else to turn, a reverse mortgage may be their best bet.

“There are a lot of people entering retirement who haven’t saved for retirement, but have equity,” says Tony Webb, a senior economist on Boston College’s research staff. “A reverse mortgage is obviously an option; the question is whether households will actually make use of that product.”

Written by Alyssa Gerace

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  • Although few want to hear it, there is much right in what the consumer advocates say.  Without the Big Two, most of the top forty should see growth but most of that growth will be a simple re-carving of the endorsement pie.
    Some forget the value that the presence of the two largest lenders, Wells and B of A, brought to the industry.  Now with both of them gone so is their image.  With financial assessment underwriting and possible reduction in the lending limit heading our way later this year, there is little way for endorsement numbers to grow in the next fiscal year.
    As stated over at LinkedIn, next fiscal year will more likely be remembered as the year in which the endorsement pie was re-carved than the year the industry grew.  It would be very surprising to see endorsements exceed 70,000 for the fiscal year ending September 30, 2012; in fact they could be much closer to 60,000 UNLESS home values substantially rise consistently from now until the end of May 2012.
    Despite what will happen at the lender level, it is doubtful if most originators will see much increase in individual production.  Marketing will have to change.  Unfortunately a reverse mortgage is not a retirement asset even though its proceeds can to some degree emulate annuity payouts.  It is a mortgage.
    The first batch of applications which is expected to be endorsed in the next fiscal year came as a disappointment to some industry leaders.  With the big push at Wells to get loans into processing, to see the number of Case Number assignments in June 2011 less than 97% of the Case Number assignments in June 2010, the expectations for the next fiscal year should be being revised downward.

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