When the largest lender –by far – in a mortgage niche exits the sector it usually signals that trouble is afoot. But according to the head of the National Reverse Mortgage Lenders Association (NRMLA), Wells Fargo’s exit from the reverse business is not a death knell.
“The players are shifting in this business,” said NRMLA president Peter Bell. “Wells may be getting out but others are getting in.”
Among those ‘others’ that are entering or expanding in the space are MetLife Bank (see related story) and Urban Financial, the latter of which is based in Tulsa, Okla.
Bell also feels that Wells is leaving the reverse business because of regulatory issues. The bank’s press release mentions “restrictions associated with reverse mortgages that make it difficult to determine seniors' abilities to meet obligations of homeownership and their reverse mortgage, e.g., payment of property taxes and homeowners' insurance."
Over the past two years more home equity conversion mortgages (HECMs) have gone into what’s called ‘technical default’ where the borrower fails to pay real estate taxes and/or homeowner’s insurance, which means the servicer has to advance funds on the borrower's behalf.
Bell says NRMLA “has been seeking guidance from the Department [of Housing and Urban Development] on how to deal with these for quite a while and has proposed programmatic changes, some that could be implemented by a Mortgagee Letter and some that would require a reg change, to help address the issue.”
The trade group wants reverse firms to have the ability to conduct a cash flow analysis and credit history review of prospective borrowers as part of the origination process to ascertain that they have the capacity to meet their obligations.
It also wants borrowers to have funds set aside for payment of taxes and insurance if an analysis indicates the need.
Another help to the industry would be for lenders to restrict the payment options available at origination for borrowers who might have challenges paying their taxes and insurance. Bell says, “Right now the program regs require us to offer all payment options: full draw, monthly payments or line of credit.”
Meanwhile, in a related event, a few days before Thursday’s announcement that Wells Fargo & Co. was exiting the sector, MetLife senior vice president Brian Lewand confirmed to National Mortgage News that his institution is targeting growth in reverse mortgage lending.
Not only is the bank/mortgage lender increasing loan production in the space, but it recently began extending warehouse lines of credit to mortgage banking firms that originate reverses. “We view it as a natural leveraging of our capabilities,” said Lewand.
According to figures compiled by NMN and the Quarterly Data Report, Wells dominated the reverse sector in the first quarter, funding $1.28 billion in product – far ahead of its closet competitor, Bank of America. MetLife ranked third nationwide with $628 million, growing its volume by a handsome 63%.
BofA is in the process of winding down its reverse commitments.