DES MOINES, Iowa (AP) — Wells Fargo Home Mortgage has announced it will no longer make so-called reverse mortgage loans, citing unpredictable home values and restrictions that make it difficult to determine if borrowers can afford homeowners’ insurance and other financial obligations.
Reverse mortgages are typically sold to people over age 62 who want to access the equity in their homes for personal expenses, such as medical bills.
But unlike home equity loans, reverse mortgages don’t have to be repaid until the homeowner sells the property or passes away.
However, the housing downturn has made it harder for banks to gauge the trajectory of home values, and thus how much they should loan.
Foreclosures have contributed to falling home prices, often vaporizing the amount of equity that borrowers have in their home.
In addition, reverse mortgages aren’t subject to the same types of tests as traditional loans.
Eligibility is determined by an FHA formula that calculates age and the home’s appraised value.
Seniors aren’t subject to the same types of income and credit score restrictions that protect banks making traditional loans.
Wells Fargo said that makes it difficult to figure out if seniors are able to afford property tax and homeowners’ insurance payments.
Wells Fargo began originating reverse mortgages in 1990.
As of last year, the funded volume of its reverse mortgage business was about 2.2 percent of all its retail mortgage volume and 1.2 percent of overall mortgage volume.
The lender said it will stop taking new applications for reverse mortgages after June 30, but will continue to service the loans of its existing reverse mortgage customers.
The 1,000 workers in the bank’s reverse mortgage division will be given opportunities to apply for other jobs at Wells Fargo.
In February, Bank of America also announced that it would exit the reverse mortgage origination business.
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