Estate Planning, Farr Law Firm, Fairfax, Arlington, Annendale, Falls Church,

No More Reverse Mortgages, Announces Bank of America

Since 2007, my opinions on reverse mortgages have been mixed. Today, I re-examine my previous articles and prior concerns, due to Bank of America’s monumental announcement Friday that it is exiting the reverse mortgage industry.

Initially, I was strongly optimistic about the use of reverse mortgages by senior citizens. However, over the past year I have been forced to retract much of my praise due to problems (and possibly discrimination) faced by some of my own clients.

In my first article, back in 2007, I explained why I thought (at the time) that many seniors ought to familiarize themselves with the basic advantages of a reverse mortgage. My second article came almost three years later in early 2010, in which I took the previous article a step further. Using a Reverse Mortgage to Pay for Home Care expounded upon the possible benefits to seniors who elect to take advantage of a reverse mortgage. But my enthusiasm was short-lived.

My feelings towards the reverse mortgage industry turned for the worse by the time I wrote my third article, Huge Problem with Reverse Mortgage Industry, in which I stated my concerns with a seemingly industry-wide practice of second-guessing the legitimacy of crucial power of attorney (POA) documents. I wrote about how two of my clients’ agents, both of whom used a different reverse mortgage lender, were met with a lender’s refusal to honor the POA needed to commence the application process. They were told to go on what could be referred to as a scavenger hunt – to obtain a letter declaring the mental competency of the applicant when the POA was signed, and a second letter stating the applicant is now not mentally competent. By the end of the article, I concluded that because of the arbitrary and capricious roadblocks imposed by the reverse mortgage lender in connection with the use of the POA, a child acting as the parent’s agent may be more likely to sell the home and place the parent in a nursing home. This result is a far cry from the user-friendly tool I anticipated.

In my most recent article, Reverse Mortgage Rules Changing Again, I reported on more problems – this time on new laws which would increase expenses for seniors including an increase in the Mortgage Insurance Premium. Today, besides followomg up on these concerns, I also think it necessary to offer my thoughts on a tell-tale strategic move, announced by Bank of America on Friday, that it will withdrawal from its once-thriving reverse mortgage business.

The Expense Issue

In my last article, I quoted a Reverse Mortgage Consultant with MetLife Bank, noting that “HUD’s ongoing Mortgage Insurance Premium will be increasing from 0.5% to 1.25% (a 150% increase!), and that the size of new HECM reverse mortgages will shrink anywhere from 1% to 5% depending on the applicant’s age.”

Unfortunately, this issue persists. According to Money Watch, “[L]ast year’s annual audit . . . revealed that the [Federal Housing Administration] had fallen below the 2 percent capital reserves required by Congress.” As a result, the FHA proposes to increase the mortgage insurance premium from 1.75% to 2.25%, and will seek approval to raise the annual mortgage insurance premium from its 55% level. This affects millions of Americans, as the above article notes that the “FHA has become the only lender available for many Americans. Over the past few years, FHA has gone from insuring around 3 percent of loans to more than 25 percent.”

Bank of America’s Exit from the Reverse Mortgage Industry

Doug Jones, Consumer Sales and Institutional Mortgage Services executive for Bank of America Home Loans said the Bank made a “strategic decision to exit the reverse business due to competing demand and priorities that require investments and resources [to] be focused [elsewhere].” At least for existing Bank of America Reverse Mortgage customers, this decision will not affect their service, as Jones explained, “[Bank of America] fully understand[s] the critical sensitivity of ensuring that our senior customers are provided with the same level of excellent customer service that we have provided in the past.”

Bank of America Home Loans entered the Reverse Mortgage Business five years ago in 2006 and grew quickly after its acquisition of Countrywide Financial and Reverse Mortgage of America, but that growth has now been hampered by bigger problems within the bank.

“What’s really going on here?” The Bank of America decision comes in the wake of bad press related to its conventional mortgage business, and peaked recently when a temporary restraining order was issued January 20 of this year against ReconTrust, a subsidiary of Bank of America. “ReconTrust is trustee on thousands of loans that are in some stage of foreclosure and approximately 8,920 of such loans have already been directly affected by this injunction,” reported the Las Vegas Sun. The order was issued based on a woman’s suit against Bank of America for “fraudulently trying to foreclose on her home,” as reported by The Street. According to a motion filed by the bank, “[The order] has created enormous upheaval and confusion in the foreclosure process across Nevada and immediate review is required.” The order forbids the foreclosures of thousands of Nevada properties until a hearing takes place, scheduled for February 28. Is the Bank allocating resources away from reverse mortgage operations in order to ensure that its larger, conventional mortgage business does not falter amidst this corporate crisis?

To give credit where credit is due, this past September, Bank of America became the first loan servicer to voluntarily suspend foreclosure sales in the United States while it evaluated its procedures. As a result, it promised to improve its “staffing, customer impact, and quality controls,” reported Mortgage Professional Magazine.

With Bank of America out of the reverse mortgage equation, only time will tell if the battered reverse mortgage industry as a whole will fully recover in the foreseeable future. I will provide updates as they develop and can only hope reverse mortgages become the efficient, user-friendly tool they once were.