Reverse Mortgage Lenders Exiting: Will They Come Back?

-Zillow Blog

It is no secret that America’s population isn’t getting any younger. In fact, according to a recent Harvard study, the number of people who will be considered “seniors” will increase 35% within the next ten years.

Will these newly-minted seniors be able to take advantage of an FHA reverse mortgage to leverage the equity they have built up in their homes so they can enjoy retirement?

Maybe. Maybe not.

According to at least one HUD official, the FHA insured reverse mortgage is here to stay and has a future as an option for seniors.

But many large lenders who have helped seniors with FHA reverse mortgages in the past, are no longer offering this mortgage product. One large lender who is pulling out even stated in their press release that the FHA reverse mortgage program was designed in a “different economic time” (the reverse mortgage program was originally designed by HUD in 1987).

Reverse Mortgages: What Is Different?

As with the “normal” mortgage market, there have been a substantial number of changes to the FHA reverse mortgage program in the last few years. More recently, at least three of the largest FHA reverse mortgage lenders have decided to discontinue helping seniors get FHA reverse mortgages in part due to reputation risk that a recent HUD opinion may cause.

Why are lenders exiting the reverse mortgage market?

1. The unpredictability of home values
2. The difficulty of determining a senior’s abilities to make payments on property taxes and homeowners insurance.

Not many people predicted the dramatic decline in home values – and the new uncertainty of future home values combined with a recent change by HUD in essentially requiring a lender to foreclose on a homeowner with an FHA reverse mortgage should they become delinquent on their property taxes or insurance.

In a recent email after deciding to exit the reverse mortgage business, one Wells Fargo executive articulated the reputation risk lenders hold when property values decline and seniors are having trouble keeping up with even their property taxes and insurance:

“The last straw in our decision was the recent HUD decision to require servicers to initiate foreclosure on the Senior Reverse Mortgage customers [who] could not pay their taxes and insurance,” the email says. “When a product or program creates more reputation risk than value … well … you get the picture.”

Falling property values.  Seniors’ budgets being stretched to the point where they can’t afford to keep up on property taxes and insurance. HUD encouraging foreclosure for homeowners with a FHA insured reverse mortgage if they can’t keep their taxes and insurance current.

It all adds up to lenders exiting the reverse mortgage business.

But probably not forever.

They can always get back in should the environment, trend of property values or HUD guidelines change.

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