Chase Manhattan Bank is gearing up for a fall launch of reverse mortgages, a move that would make it one of the biggest commercial banks to get behind this new and often controversial product.
The product could be available as soon as next month through Chase's mortgage subsidiary, a bank spokesman said.
Under the program, Chase will market in its branches products developed by Fannie Mae and by the Department of Housing and Urban Development's FHA program, industry analysts said.
Boosters of reverse mortgages are hailing Chase's move, saying the big bank's involvement helps validate the fledgling business.
"It's great to see a bank of Chase's stature involved," said Michael A. Hyman, senior vice president with Wendover Funding Inc., a servicer of reverse mortgages.
Mr. Hyman said his company will be servicer for a Chase program that will offer Fannie Mae and FHA reverse mortgages in a three-state area that includes New York.
In going with a Fannie Mae product, Chase is keeping with lenders' preference to test the waters by marketing other companies' reverse mortgages. The products are created by a handful of providers, including Fannie Mae, the FHA, and financial companies like Transamerica Inc. By relying on other companies, lenders receive origination fees and leave to more experienced underwriters the business of working out actuarial tables.
The American Association of Retired Persons, a powerful organization for people 50 and older, has given reverse mortgages a qualified nod, saying the concept is fine, but that terms and other conditions are sometimes unfair. The hint that seniors could be exploited are one of the reasons mortgage banks are stepping cautiously into the business, wanting to avoid controversy, industry analysts said.
Chase's reputation as an upstanding lender will help affirm reverse mortgages' benefits to seniors who want extra money without giving up their homes, Mr. Hyman said. Generally, in return for agreeing to a lien on their property, seniors can receive a lump sum, a line of credit, or some combination.
Chase is not the only lender planning a reverse mortgage drive. The mortgage unit of General Motors Acceptance Corp. plans to broaden a push that began with that company's retirees, and other lenders are considering their own programs, Mr. Hyman said.
The lenders can be expected to put a lot of marketing dollars behind their reverse mortgage push, increasing the products' visibility industrywide, Mr. Hyman said.
Reverse mortgages could do with some profile raising, industry observers say. Advertised as a way for the elderly to tap the equity in their homes, reverse mortgages have so far failed to find a mainstream audience. Just 35,000 of the loans have been made over the past few years, compared with hundreds of thousands of conventional mortgages originated annually.
Industry experts say reverse mortgages are subject to state regulations that can make marketing difficult and require considerable education efforts to make sure senior borrowers understand what they're getting.
The stumbling blocks recently forced Fannie Mae to scale back projections that it would originate $1 billion of the loans in its program's first year.
