Reverse Mortgages: Good Product Made Nearly Impossible to Provide

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: 

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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.

Read the full article at American Banker.com

Written by Elizabeth Ecker

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  • As of today, one could only wish for a month of over 4,000 endorsements.  For the first time in years, the endorsement total for a single month month came in under 4,000 at 3,868 (for July 2012).  Since this total has more to do with applications receiving case numbers in late February through early May (using for the “four month lag rule”), one would have to conclude that the endorsement total has little to do with MetLife leaving the industry.

    It seems we may be experiencing the very low pull rate that HUD has been describing for months now.  Of course one month is just that.  One would have to look at the number of HECMs ready but waiting for endorsement as of June 30, 2012 and again as of July 31, 2012 to get a real sense if this is a matter of vacations or other seasonal disruption to the endorsement process or if this number is far more meaningful than hoped.

    Will the endorsements for this month and next make us forget the total for July?  We will know in 61 days.  If not, then call me one of the overoptimistic with a projection of 57,000 endorsements for this fiscal year.  We are now at 47,000 with two months to go.

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