In an article this week outlining the challenges and opportunities lenders today face in offering reverse mortgages, American Banker addresses heightened regulation, big bank exits and the work of the new Consumer Financial Protection Bureau in oversight of the market.
Citing input from numerous lenders either currently in the business or having recently left the business, the article finds that while reverse mortgages are a good product, the lending environment is making them increasingly difficult to provide—despite a rising need for people to access the equity they have built in their homes.
American Banker writes:
Nationwide production of reverse mortgages began to decline in 2009 as falling home values squeezed the equity available to borrowers, and as major players began quitting the business. In April, the FHA endorsed 4,595 reverse mortgages, a drop of 60 percent from April 2009, the peak year for the product.
MetLife, BofA and Wells all cited different reasons for exiting. MetLife opted to jettison all of its banking operations to escape the regulatory burden of the Dodd-Frank Act. BofA and Wells both cited the drop in home values, which made fewer people eligible for the loans. But Wells said the biggest factor in its decision was that under current federal regulations, banks must approve the loans for any applicant who is old enough and has enough equity, regardless of income. That effectively prevents banks from considering other important factors that may affect whether an applicant will be able to keep up with taxes and insurance on the property.
Borrowers don’t make payments on reverse mortgages. But if they fall behind on the taxes or insurance, that’s considered a default. According to John K. Lunde, president of Reverse Mortgage Insight, just under 10 percent of reverse mortgages had defaulted on at least one of those items as of late last year. The industry anticipates that later this year, regulators will start allowing lenders to do a full assessment on reverse mortgage applicants, Lunde says.
…For banks interested in wading into the market, third-party programs make it easy, says Jeff Taylor, president of Wendover Consulting in Greensboro, N.C., and former head of reverse mortgage lending at Wells Fargo.
Banks can find the customers and hand off the back-office work and compliance worries to specialty lenders. “That allows them to serve the customer, not send them to the credit union around the corner or another community bank who might be doing it,” Taylor says.
Written by Elizabeth Ecker