Wells Fargo announced that they are exiting the reverse mortgage business, after more than 20 years of offering reverse mortgages. While it may not have been the shot heard around the world, it is interesting that Wells Fargo is not alone. Bank of America announced their exit from the reverse mortgage business in February of this year. Even more interesting is that both occupied the #1 and #2 slots as the top volume reverse mortgage lenders in the country.
What will their exit mean for consumers? By all accounts, the industry is still going strong. A 2011 Harvard Housing Study predicted that the number of senior households will increase 35% by 2020. With pension plans declining and uncertainty over the future of Social Security, home equity remains a major source of potential funding for retirement needs.
So if the market remains strong, why are top lenders exiting? Wells Fargo cites unpredictable home values as a major factor in their decision. Because reverse mortgages are designed to be repaid after the last borrower has either passed away or is no longer living in the home, it can be difficult to predict what the home’s value will be when it comes time for repayment. Fortunately, one of the pros of reverse mortgage loans is that they are FHA insured. Lenders are protected from an unanticipated loss in value at the time of sale and borrowers are protected from unanticipated lender insolvency.
In all, it is likely that consumers won’t see much impact. While none of the four largest banks will offer reverse mortgages, a broad range of alternate lending options remain, including lenders who focus exclusively on reverse mortgage loans.