Wells Fargo has reversed itself on reverse mortgages. The bank, one of two biggest providers of such loans (along with Bank of America), said last week it would be exiting the business, although jittery customers apparently have little to fear.
Bank of America previously announced its own departure earlier this year. The two accounted for more than 40 percent of all such loans, according to Reverse Market Insight, which aggregates and analyzes industry data.
News that the two biggest players have turned their backs has left some elderly borrowers, who depend on reverse mortgages to fund retirements costs and pay medical bills, surprised and concerned. "I'm in shock," said a retired California dentist, 83, asked for anonymity.
The man took out a Bank of America reverse mortgage two years ago on his Sausalito home. He uses the $5,500 a month he gets from it to pay medical expenses for his wife, who suffers from Alzheimer's and needs full-time care.
"It's not anything I've heard of," he said of Bank of America's decision. "I haven't been notified. I presume people who have mortgages are still going to have them honored? I certainly plan to call the young lady who negotiated my loan and ask her what's going on."
Both banks say holders of existing loans can rest easy. While they will not originate any new reverse mortgages, they will continue to honor and service their existing ones.
Greg Gwizdz, Wells Fargo's national sales manager, reassured borrowers. "We will continue to service all of our portfolio," he said in a phone interview. "Don't expect any changes in terms."
He expects any slack created by his bank's and Bank of America's exits to be taken up by other lenders.
John Lunde, president of Reverse Market Insight, agreed with that prediction. Moreover, he says, people who might need such a loan in the future should have no trouble finding one. "These products will continue to play a role for the foreseeable future."
The providers of reverse mortgages, though, might change. "Maybe you won't find them offered by the institution where you do your checking. It may not be a big bank but an insurance company like MetLife, or some smaller, independent specialist."
An list of providers can be found on the website of the National Reverse Mortgage Lenders Association.
Reverse mortgages, officially called Home Equity Conversion Mortgages (HECMs), were created by the Department of Housing and Urban Development in 1987 to benefit home owners aged 62 or older. Federally insured, they make it possible for owners to borrow against their equity after first having received counseling on their obligations and their alternatives.
The loan is repaid after the owner dies, leaves the home or it is sold.
Further information can be found on HUD's website.
There's also a list of HUD-approved providers of counseling for people wondering if a reverse mortgage is right for them, including GreenPath Debt Solutions.
Elaine Bloom of Lawrence, Mich., calls her reverse mortgage a godsend. She and her husband, she says, "got a good rate. It's specified in our contract how much it can rise and how often. It's very controlled. I'm sure that's not appealing to most banks."
She professes sympathy for Wells Fargo and Bank of America. "It's too bad they're getting out, but I guess I understand why: Banks are in business to make money. I suspect the reason these two got out is it's too government-controlled; they can't make the money they'd like to."