The reasons behind Wells Fargo’s decision to exit the reverse mortgage continue to trickle out and late Friday afternoon, an email confirmed a rumor that had been spreading throughout the day.
An email obtained by American Banker shows that Phil Bracken, an executive vice president of Wells Fargo Home Mortgage, was worried that the Department of Housing and Urban Development would force it to foreclose on senior citizens with delinquent reverse mortgages insured by the Federal Housing Administration.
“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 says. “When a product or program creates more reputation risk than value … well … you get the picture.”
Several individual loan officers at the bank told RMD this was the main driver behind the decision on Friday and the email seems to back up the claims. However, it does seem strange that such an email would be leaked to the press showing the company in a positive light and pointing the finger at HUD for the reason it’s leaving.
When RMD spoke with Wells Fargo last Thursday, the bank’s spokesperson stressed it had more to do with the inability to asses seniors ability to maintain the requirements of the loan.
HUD has been working on developing some kind of financial assessment for HEMC borrowers, to provide lenders a better tool at preventing taxes and insurance defaults. Vicki Bott, former deputy assistant secretary for single family housing at FHA told RMD it was expected to be released in May.
The hope was that the assessment would help limit the number of seniors who fall behind on their taxes and insurance payments. Current estimates put the total number at around 5% of the outstanding HECM loans according to Reverse Market Insight.
HUD hasn’t provided any update for when the assessment will be published and has declined to comment on Wells Fargo’s exit. However, the National Reverse Mortgage Lenders Association said it anticipates HUD will be issuing a rule change in the future to provide HECM lenders with the discretion to make these necessary underwriting changes.
The loss of large institutions like Bank of America and Wells Fargo means there are fewer options for consumers, but other companies are looking to step up in their place.
“As our financial system gets concentrated into a smaller number of larger and larger institutions, many niche markets will be underserved or not served at all by these mega-institutions,” said Jeff Lewis, chairman of Generation Mortgage on Friday. “Independent, entrepreneurial companies like Generation Mortgage will do everything we can to fill that void, but we can only do so with the continued cooperation and participation of the Federal Housing Administration, Ginnie Mae and other arms of the federal government.”