Reverse mortgages will help millions of people stay in their homes and pay for a variety of retirement expenses in the coming decades
Big banks want nothing to do with reverse mortgages.
In one of the stranger developments on the personal finance landscape in recent years, both of these statements turn out to be true. But you’d certainly be forgiven for looking at the headlines from the first half of 2011 and wondering whether reverse mortgages have a future.
First, Bank of America got out of the business of offering new reverse mortgages, which allow people 62 and older to access some of their home equity without having to make any mortgage payments as long as they live in the home full time.
Then, this month, Wells Fargo exited, taking subtle but pointed potshots at its regulator, the Department of Housing and Urban Development, as it said its goodbyes.
HUD does, in fact, intend to continue standing behind reverse mortgages, which might not exist were it not for the government insurance that backs most of these “home equity conversion” loans.
“People certainly shouldn’t be worried,” said Vicki Bott, who was HUD’s deputy assistant secretary for single-family housing until Friday, when she left for personal reasons.
This is a good thing. Reverse mortgages got a bad rap over the years, and deservedly so, for high fees and aggressive salesmen who persuaded elderly borrowers to extract equity and then drop the money in inappropriate annuities and other insurance products.
But let’s get real here. In the coming decades, millions of people in their 70s and 80s will run out of money. Social Security will be inadequate, they will have no private pensions and they’ll have spent all of their 401(k) savings, if they had any to begin with.
Making a mortgage payment is one of the best forms of forced savings we have. So for people who don’t want to sell their homes and downsize to free up money for living expenses (or can’t, for practical reasons), a reverse mortgage may be their best hope for continued solvency.
Then last week, American Banker, a trade publication, got hold of an e-mail from another senior Wells Fargo executive, Phil Bracken, who discussed concerns that HUD’s rules would effectively force the bank to foreclose on senior citizens. This, he said in the e-mail, created a situation where the reverse mortgage product “creates more reputation risk than value.”
Ron Howard 206-852-7023
