Wells Fargo & Co. has become the latest lender to stop making controversial home loans known as reverse mortgages, according to an article today at wsj.com by David Benoit and Al Yoon.
The San Francisco bank, the nation's biggest mortgage lender and the top issuer of reverse mortgages, said yesterday it would stop making the loans, a special type of home equity loan available only to homeowners over the age of 62. Under these loans, borrowers tap the equity in their homes to receive regular payments. The loan is paid back when the home is sold, or when the borrower dies.
The article said that "Wells Fargo said it no longer feels comfortable making the loans to seniors, citing falling home prices and restrictions on the federal program through which the loans are regulated and guaranteed. Wells said the program's rules limit lenders' ability to evaluate whether seniors taking out the loans will keep paying their property taxes and insurance."
"Quite frankly, the inability to take a look at the seniors' financial situation to assess their ability to sustain home ownership as we are giving them the reverse mortgage is really an issue," said Franklin Codel, the bank's head of national consumer lending, the article said.
The loans are run through a program by the Department of Housing and Urban Development, which sets the parameters for them. The products are known for having high upfront fees, and consumer advocacy groups have warned the complex loans are fertile ground for scams and deceptive marketing, the article said, adding that "in a reverse mortgage, the loan and its interest are due when the borrower dies, sells the house or fails to pay property taxes or homeowner's insurance."
"Instead of the reverse mortgage program, the bank would rather lend to seniors through more typical home equity products, Mr. Codel said. He said the financials, and not criticisms of the product, led to Wells Fargo's decision," the article said, adding that "in February, Bank of America Corp. also exited the business, saying it wanted to concentrate on other areas of the mortgage business."
The National Reverse Mortgage Lenders Association said in a statement that demand remains strong for the loans and noted that they are still available. The organization also said it has been working with HUD to develop procedures to let lenders assess the loans, and that "it is anticipated that the Department will be issuing a rule change in the future," the article said.
Reverse mortgages made up about 1.2 percent of Wells Fargo's total mortgage volume. The company will continue to service existing loans, but will not create any new ones starting the end of the month.
The San Francisco bank, the nation's biggest mortgage lender and the top issuer of reverse mortgages, said yesterday it would stop making the loans, a special type of home equity loan available only to homeowners over the age of 62. Under these loans, borrowers tap the equity in their homes to receive regular payments. The loan is paid back when the home is sold, or when the borrower dies.
The article said that "Wells Fargo said it no longer feels comfortable making the loans to seniors, citing falling home prices and restrictions on the federal program through which the loans are regulated and guaranteed. Wells said the program's rules limit lenders' ability to evaluate whether seniors taking out the loans will keep paying their property taxes and insurance."
"Quite frankly, the inability to take a look at the seniors' financial situation to assess their ability to sustain home ownership as we are giving them the reverse mortgage is really an issue," said Franklin Codel, the bank's head of national consumer lending, the article said.
The loans are run through a program by the Department of Housing and Urban Development, which sets the parameters for them. The products are known for having high upfront fees, and consumer advocacy groups have warned the complex loans are fertile ground for scams and deceptive marketing, the article said, adding that "in a reverse mortgage, the loan and its interest are due when the borrower dies, sells the house or fails to pay property taxes or homeowner's insurance."
"Instead of the reverse mortgage program, the bank would rather lend to seniors through more typical home equity products, Mr. Codel said. He said the financials, and not criticisms of the product, led to Wells Fargo's decision," the article said, adding that "in February, Bank of America Corp. also exited the business, saying it wanted to concentrate on other areas of the mortgage business."
The National Reverse Mortgage Lenders Association said in a statement that demand remains strong for the loans and noted that they are still available. The organization also said it has been working with HUD to develop procedures to let lenders assess the loans, and that "it is anticipated that the Department will be issuing a rule change in the future," the article said.
Reverse mortgages made up about 1.2 percent of Wells Fargo's total mortgage volume. The company will continue to service existing loans, but will not create any new ones starting the end of the month.
Architecture Critic
Carter Horsley
Since 1997, Carter B. Horsley has been the editorial director of CityRealty. He began his journalistic career at The New York Times in 1961 where he spent 26 years as a reporter specializing in real estate & architectural news. In 1987, he became the architecture critic and real estate editor of The New York Post.
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