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Wells Fargo is getting out of the reverse mortgage business

[Jun 22, 2011.]

 

Wells Fargo recently said it is getting out of the reverse mortgage business. The decision is due in part to the continuing decline in home values.


Home prices continue to fall


According to the Federal Housing Finance Agency's monthly House Price Index, U.S. home prices fell 12 percent in the 12 months ended in April. The index is 19.3 percent below its peak in April 2007.


Wells Fargo said in a statement:



The decision was made based on today's unpredictable home values along with the restrictions associated with reverse mortgages that make it difficult to determine seniors' abilities to meet the obligations of home ownership and their reverse mortgage, e.g., payment of property taxes and homeowners' insurance. The government's HECM or reverse mortgage program was designed in a different economic time.



The mortgage lender said it will continue to service existing reverse mortgage customers. But new reverse mortgage applications won't be accepted after June 30, 2011.


Troubled reverse mortgages


Reverse mortgage borrowers do not make monthly payments on loans. But they can end up defaulting on the loans if they don't pay property taxes and insurance. Some seniors have defaulted on reverse mortgages and ended up in foreclosure, raising alarm bells in the industry.


Reverse home mortgages are available to seniors aged 62 and up who own a house. The loans allow you to convert some of your home equity into cash, and the money can be used for pretty much any purpose. Common uses for reverse mortgage proceeds include medical expenses and home repairs. The Home Equity Conversion Mortgage (HECM), the most popular reverse mortgage in the U.S., can even help you move to a different house, as long as it will be your principal residence.


Reverse mortgage counseling


Before applying for a reverse mortgage, you have to get counseling. The counseling session will help you learn more about reverse mortgage guidelines, fees involved and other pertinent information about tapping home equity. The Department of Housing and Urban Development (HUD) has a list of approved counselors.


While Wells Fargo will no longer underwrite reverse mortgages, there are other lenders who still offer these loans. Take time to shop around and compare reverse loan deals because fees can vary from lender to lender. It is also important to learn as much as possible about the positives and negatives of these loans. Reverse mortgages have helped some seniors improve their financial situation, but they won't work for everyone.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.

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