I have chronicled the ups and downs of the reverse mortgage industry for the past five years. In 2010, I exposed two major problems with the reverse mortgage industry — the “competency problem” and the “expense problem.”
- I praised reverse mortgages in 2007 as a viable way for seniors to remain at home as long as possible in my article, Reverse Mortgage Home Equity Loans.
- I viewed reverse mortgages then as an excellent choice for various reasons, explained in detail in my early-2010 article, Using a Reverse Mortgage to Pay for Home Care.
- By mid-2010, I wrote about what I perceived to be discrimination in the lending industry. I completely explain why that was such a nefarious issue to my clients and the elderly at-large in the article, Huge Problems with Reverse Mortgage Industry.
- Merely a few months later I found myself writing about the “expense problem” in, Reverse Mortgage Rules Changing Again, noting Congress’ plan to increase HUD’s Mortgage Insurance Premium.
- In February, 2011, I reported on the fact that one of the reverse mortgage industry’s largest lenders, Bank of America, had dropped out of the reverse mortgage business in No More Reverse Mortgages, Announces Bank of America.
- Last week I explained how the Farr Law Firm has taken steps to help clients get around the “competency problem,” in The Reverse Mortgage Saga Part 5: “How the Farr Law Firm is Helping Clients Stay at Home.”
- This week I provide an update that may signal an end to the “expense problem.”
All of these problems amounted to the beginning of the end for this national industry, because by February, 2011, Bank of America announced it was exiting the industry. MetLife followed Bank of America’s footsteps as of April 30th, 2012.
Officially, Bank of America exited the reverse mortgage industry due to strategic business reasons.
Discussed in No More Reverse Mortgages, Announces Bank of America, the Bank cited “competing demand and priorities, [requiring resources to be allocated elsewhere.]” However, as the article also explained:
“The Bank of America decision [came] 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 [2011] 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.”
When MetLife announced its’ plans to exit the industry on April 26, 2012, a press release was issued stating the following:
“MetLife’s entire retail banking business, including mortgages, represented under two percent of [its’] 2011 operating earnings. Given MetLife’s strategic focus as a global insurance and employee benefits leader, [it] decided in 2011 that a bank holding company structure was no longer appropriate.” (Emphasis added)
However, just because MetLife’s retail banking business represented less than two percent of operating earnings in 2011 does not necessarily mean it was a miniscule part of its overall business, or business investments. Was the MetLife decision truly a strategic one, or were there organizational problems beneath the surface of the press release??
After looking into the issue – that is, past the MetLife press release – it seems as if there are no such organizational distractions as may have been the case with Bank of America. According to sources quoted by BusinessWeek, the banking sector of MetLife – including its reverse mortgage services – simply were not profitable enough to continue operations. And the burden of increased regulatory standards may have also played a role, further tipping the scales to exit the industry, suggested The Wall Street Journal. The bottom line is best summed up by Reverse Mortgage Daily, stating that the consensus is that unlike the Bank of America situation (where there were problems, perhaps, behind the scenes, “[The MetLife decision is] just another stop in a bigger exit strategy on the part of MetLife, which has been shedding business lines since last year and recently saw its CEO step down.”
Without Bank of America and MetLife, the national industry may be gone, but reverse mortgages are not, as they are still available through independent brokers. The question thus becomes, whether reverse mortgages, as they currently are now offered, are worthwhile options for seniors who want to remain in their homes for as long as possible? Furthermore, what will these institutions do to help senior citizens that the larger institutions did not? I would say waiving the exorbitant fees is a good start.
The “Expense Problem” and one Lender’s Answer
All one needs to do is take a glance at the graph below to see how the “expense problem” affected many American’s decision-making processes when deciding whether to take a reverse mortgage, starting right around the beginning of the recession in 2009. It is drastic, to say the least. Although my article, Huge Problems with the Reverse Mortgage Industry mainly focused on the “Competency” problem, another lawyer aptly commented on the blog:
“[W]hat really convinced me [a reverse mortgage] was not right for my brother-in-law’s parents . . . were the very high fees charged on the mortgage.”
True to the back-and-forth nature of this entire saga, at least one lender is using a tactic to salvage the reverse mortgage home equity loan: no upfront fees! The fees associated with a reverse mortgages have been a long-time sticking point for many people. I received an email late last month from Ernie Castro, Director of Reverse Mortgage Finance for Mortgage Solutions, LTD. In that email, Mr. Castro acknowledged the expense issue:
“Huge upfront fees . . . without a doubt . . . have been the #1 objection to the Reverse Mortgage during my career when discussing the product with financial professionals, elder law attorneys, and CPA’s. Mortgage Solutions has negotiated with one of our lenders a fixed rate Reverse Mortgage with no upfront fees to the borrower…no origination fee, no upfront mortgage insurance fee, no service fee.”
The Reverse Mortgage Lenders Association shows just 73,000 reverse mortgages taken out in 2011, down from a high of 114,000 in 2009. 2012 numbers are not released in full because the fiscal year ends in October, but clearly they are on track to register the worst year since reverse mortgages became very popular in 2007, and the largest 1-year percentage-based decline in history.
What happened? Speaking as an elder law attorney, if I were to chart my enthusiasm towards reverse mortgages for seniors as a way to remain at home longer, it would mirror this chart:
With those fees no longer a deterrent, will the industry come back to life? Perhaps, but only if people are able to jump the “competency” hurdles. If more elder law attorneys provide POA clients with Affidavits of Competency to get signed contemporaneously with the POA signing, then maybe, just maybe, we will see this graph reverse its’ current trend.
A Final Thought (for now)
As everyone knows in these days of financial volatility, market conditions can change quickly and without notice, so for anyone who has previously considered a reverse mortgage but balked at the unattractive fees previously associated with them, now would be a good time to speak with an elder law attorney about how to take advantage of a reverse mortgage if remaining at home for as long as possible is important to you or a loved one.
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Image courtesy of FreeDigitalPhotos.net
About Evan H Farr, CELA, CAP
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