Are Big Banks Getting Back into Reverse Mortgages?

It has been three months since a groundbreaking rule change came in the form of a reverse mortgage financial assessment that is now mandatory for all borrowers. The change, in addition to other recent program adjustments to help make it safer for borrowers, gets at the crux of issues some large institutions cited in exiting reverse mortgages in the past. Is now the time for them to get back into the reverse mortgage space?

Maybe.

The aftermath of the housing crash presented many problems across the landscape for housing finance including millions of loan defaults and subsequent public and government scrutiny of both mortgage lenders and servicers.

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Around the same time, the reverse mortgage business saw three of its largest lenders exit their reverse operations: first, Bank of America in February 2011, followed by Wells Fargo in June 2011 and later MetLife in April 2012.

Despite its own test rollout of an in-house financial assessment for borrowers well before the Department of Housing and Urban Development’s rule took effect, MetLife’s exit had more to do with the proportion of the company’s business that its mortgage lending comprised, with the company stating at the time that its entire banking operation was less than 2% of its overall business.

Bank of America, too, went through a shift toward focusing on other areas of the banking giant’s business, having closed its wholesale forward operations months before exiting reverse.

But in the case of Wells Fargo, one of the reasons the company cited for exiting was directly related to uncertainty around borrowers’ ability to meet their loan obligations.

“Home values are pretty unpredictable right now, and when you combine that with the restrictions of the HECM program, it’s difficult to determine whether [borrowers] can meet their obligations,” one of the company’s reverse mortgage managers told RMD at the time.

Today, the question remains: has the Home Equity Conversion Mortgage program changed enough for the best to encourage large banks to get back in to the business?

Bank of America says no.

“We have no interest in re-entering the reverse mortgage originations business,” a spokeswoman said this week in response to RMD’s inquiry.

Wells Fargo says the company is aware of the changes but declined to speculate on any potential re-entry.

“We’re certainly aware of these developments and are reviewing the potential implications, but I can’t speculate about how they might impact our participation in the reverse mortgage business,” a spokesman told RMD.

The National Reverse Mortgage Lenders Association declined to comment for this story, noting it is speculative in nature. However, the lending landscape has changed substantially over the last four years, possibly encouraging more participation from new and old players.

There has already been some movement among the eight largest U.S. banks; last year, BNY Mellon announced it would be getting back into reverse mortgages, and this year launched operations toward that effort.

Some industry participants say the timing is just right.

“There has never been a safer time for regulated institutions to enter or re-enter the reverse mortgage market,” says Wendy Peel, VP of Sales and Marketing for industry software provider ReverseVision. “The significant product changes beginning with tighter regulations to lump sum payments, clarifying the non-borrowing spouse guidelines and, finally, financial assessment gives both borrowers and lenders safety with the HECM product.”

ReverseVision has made an effort, along with industry partners, to engage forward lenders in the reverse business. And it’s starting to see some success, Peel says.

“At ReverseVision, we are seeing a marked increase in interest by banks and credit unions. So much so that we have begun advertising in [banking trade publication] American Banker and added to our operations team both people and processes to pass the stringent Vendor Assessments that come from a regulated institution.”

Written by Elizabeth Ecker

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  • Does Wells really want back in? Is the industry better off without Wells? Wells has a lot of consider before diving into the deep end blindly. The lure of tail payouts must be great.

  • Wells had the perfect formula before- would shake the landscape if they came back as their branch network would be single greatest source of opportunity in the industry.

      • Ron,

        Can you validate your feeling about big banks being behind on most with facts? What you state is very, very unlikely. Just look at what MetLife for one did about financial assessment!!!

    • wealthone,

      No one doubts that benefit to Wells originators but what is the incentive for Wells to come back.

      Wells is not going to come back if the principal benefit is access to its branches. It needs the incentive of profits in a growing market.

      • Because of the 12 closed loans I have done this year already via referral from Wells Fargo relationships in only 3 locations. That’s quite a bit of profit they are watching go out the door in an environment where they are trying to keep any banking related service “in house”. Imagine how many NSF fees they have to accumulate to make as much as any one of the deals they referred to me.

      • wealthone,

        You really do not understand Wells if you think that is the only or even the principal way Wells makes money. They made more in interest income in just month than all of the revenue your 12 loans combined could generate by simply servicing the commercial loan Wells originated two decades ago on a large office and entertainment complex owned by a group of friends in Sacramento, CA. But you would be surprised by how much revenue those millions of checking accounts they administer month in and month out generate to Wells in the form of fees but more importantly income from other services these customers get from Wells including home mortgages from the largest such lender in the country.

        For Wells, reverse mortgages were more worrisome than they were worth in total revenues. They could dump them and have their bottom line go up anyway.

  • The timing should be right for the large banks to look at re-entering the market or even new players in the banking industry jumping in but will they?

    I don’t feel the large banks are ready to get back into the reverse mortgage space today. I don’t even feel new players in the banking industry want to take the risk today>

    Fear is the main reason in my opinion, fear of taking the risk again for the Wells Fargo’s of the past as well as new players analyzing the field.
    We have to remember, Wells, BOA and Met Life sent shock waves throughout the industry but it made the large banks even more skittish about entering the market. Banks are very conservative, this would not be the time for them to take what they feel would be a risk move on their part.

    One other thing to consider is all the new regulations banks have had to deal with. They have enough headaches confronting them daily with the CFPB.

    John A. Smaldone

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