Bank Exits Reverse Mortgages; Cites Fears HUD Will Oust Elderly
SAN FRANCISCO-Wells Fargo & Co. has decided to exit reverse mortgages after federal officials insisted it foreclose on elderly customers who were behind on property tax and insurance payments, a Wells executive wrote in an email to business contacts last week.
The San Francisco-based bank had other reasons to shut down its 1,000-employee reverse mortgage unit, according to American Banker, an affiliate of Credit Union Journal. The industry's lack of growth, declining housing prices and other issues have reduced its draw for major lenders, prompting other market leaders such as Bank of America Corp. and Financial Freedom for Seniors Inc. to pull out as well. The business is simply not central to the mortgage operations of Wells and others.
But the pullout occurred after a disagreement between Wells and the Department of Housing and Urban Development came to a head, Phil Bracken, an executive vice president of Wells Fargo Home Mortgage, wrote in the email. Wells was worried that HUD would force it to foreclose on senior citizens with delinquent reverse mortgages insured by the FHA, according to a copy of the message obtained by American Banker.
"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."
Under a reverse mortgage, homeowners must continue paying property taxes and insurance premiums. If they lack the money, the lender makes the payments for at least two years while attempting to work out a repayment plan. In the event that effort fails, the lender is then supposed to seek authorization from HUD to begin proceedings that lead to foreclosure.
HUD declined to comment.
Broader Concerns Over Finances
A Wells spokeswoman attributed the move to a more general concern over the bank's inability to assess whether a senior could afford homeownership, even with a reverse mortgage.
"That, I would say, was much more of concern than anything else," she said. "We were talking to HUD, and looking for ways to revise the program. We decided to discontinue these originations because we felt we'd exhausted our options."
Wells' departure was unwelcome news for the industry at large.
"Nobody who wants to be in the reverse mortgage space is going to be helped by Wells withdrawing," said David Kittle, a former chairman of the Mortgage Bankers Association who now works for mortgage auditing firm IMARC LLC. "The optics are, 'Oh my God, Wells is getting out. What's wrong?"