Wells Fargo Mortgage Company

Wells Fargo to stop making reverse mortgages

Wells Fargo Home Mortgage said Thursday that it will no longer make so-called reverse mortgage loans, citing unpredictable home values and restrictions that make it difficult to determine if borrowers can afford homeowners' insurance and other financial obligations.

Reverse mortgages are typically sold to people over age 62 who want to access the equity in their homes for personal expenses, such as medical bills. But unlike home equity loans, reverse mortgages don't have to be repaid until the homeowner sells the property or passes away.

However, the housing downturn has made it harder for banks to gauge the trajectory of home values, and thus how much they should loan. Foreclosures have contributed to falling home prices, often vaporizing the amount of equity that borrowers have in their home. In addition, reverse mortgages aren't subject to the same types of tests as traditional loans. Eligibility is determined by an FHA formula that calculates age and the home's appraised value. Seniors aren't subject to the same types of income and credit score restrictions that protect banks making traditional loans. Wells Fargo said that makes it difficult to figure out if seniors are able to afford property tax and homeowners' insurance payments.

Wells Fargo began originating reverse mortgages in 1990. As of last year, the funded volume of its reverse mortgage business was about 2.2 percent of all its retail mortgage volume and 1.2 percent of overall mortgage volume. The lender said it will stop taking new applications for reverse mortgages after June 30, but will continue to service the loans of its existing reverse mortgage customers. The 1,000 workers in the bank's reverse mortgage division will be given opportunities to apply for other jobs at Wells Fargo.

In February, Bank of America also announced that it would exit the reverse mortgage origination business.

Wells Fargo Home Mortgage is a unit of San Francisco-based bank Wells Fargo & Co. Shares rose 25 cents to close earlier at $26.80.

Wells Fargo, Largest Reverse Mortgage Lender to Exit Retail ...

Wells Fargo has confirmed it will no longer offer reverse mortgages to customers.

The decision to close down its retail channel stems from economic uncertainty and restrictions associated with reverse mortgages that make it difficult to determine seniors’ abilities to meet the obligations of homeownership.

“Home values are pretty unpredictable right now, and when you combine that with the restrictions of the HECM program, it’s difficult to determine whether [borrowers] can meet their obligations,” said Greg Gwizdz, EVP/National Sales Manager at Wells Fargo Home Mortgage during an interview with RMD.

While it is closing down its origination channel, Wells Fargo will continue to service the loans of existing customers.

The largest reverse mortgage lender in the country, Wells Fargo has 26.2% market share according to the latest data from Reverse Market Insight. In April, it endorsed 1,317 reverse mortgages, and its annual total for 2010 came to 16,213 HECM units. While its monthly average was down slightly, overall volume did not appear to have any substantial change leading up to the exit.

The company has used its retail branch network to drive the majority of its overall business. Until recently, Wells Fargo operated a small wholesale channel, which it announced in March was closing. Following the wholesale announcement, the company indicated it would continue its retail operation and would transition its support team to the retail channel.

Wells Fargo’s decision to now leave the retail business comes on the heels of the decision by Bank of America to exit the industry in February of this year, as well as the exit of One West, which announced in March would shut down Financial Freedom . Financial Freedom CEO Michelle Minier said at the time that the decision was based on the regulatory environment and the desire to focus on the bank’s core businesses. Similarly, Bank of America said it was closing its reverse mortgage operation to focus on its core mortgage business.

The timing of the exit is in line with increased regulation throughout the industry including recent changes to loan officer compensation and what some have said will be unprecedented oversight of large banks by the Consumer Financial Protection Bureau, mandated under Dodd-Frank and scheduled to launch on July 21.

Additionally, the Department of Housing and Urban Development has stated it is in the process of developing a financial assessment that will be included in the HECM loan process, and loan limits in the program could return from $625,500 to $417,000 in October.

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