Reverse Mortgages: Customers Have Little to Fear as Wells Fargo and Bank of America, Two Biggest Players, Exit Business

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Some Banks Fear Borrower Credibility

She's right. Wells, in a news release, cited two reasons for getting out: The unpredictability of today's home values. And, second, HUD restrictions "that make it difficult to determine seniors' abilities to meet the obligations of homeownership and their reverse mortgage" -- for example, their ability to pay property taxes and homeowners' insurance.

Regulations prevent lenders from obtaining financial information that would answer those questions about applicants.

Although lenders have long sought from HUD greater freedom to obtain financial information on borrowers, those efforts have not borne enough fruit soon enough to keep Wells Fargo and Bank of America in the game.

Gwizdz of Wells Fargo says having such information would make reverse mortgages "a safer product" for lenders. As it is, however, "If you're not able to verify the information, a senior may have no money in the bank and no ability to pay home owners insurance or taxes or to maintain the property. So, the lender is at risk from day one."

If property values fall and unpaid fees accumulate, the amount owed can soon exceed the value of the property.

It's a recipe for foreclosure, says Lunde of Reverse Market Insight, an outcome that "doesn't do the lender or the borrower any favor. Nobody wants a loan that winds up in foreclosure."

Mandatory pre-loan counseling is supposed to protect borrowers from that outcome by forcing them to consider solutions to their money needs other than a reverse mortgage. Somebody who needs money to fix up their home, say, might be better off finding a federal or state program that makes home-improvement loans.

The counseling system, however, isn't fool-proof. The 83-year old Sausalito dentist, for example, based his decision to get a reverse mortgage on conversations he had with friends who already had them. He can't now remember, he says, if he got the required counseling.

Bloom says she and her husband took out their loan in December and are using it to make enhancements -- "little fix-it things" -- that they hope will make their home easier to sell. "We're optimistic. The market here right now is picking up," she said. "Our goal is to list the house in the first part of July."

If it sells, they'll use the proceeds to pay off the mortgage, then kick up their heels and look to greener pastures. "We'll move to somewhere warm," she said, "where my husband can play golf."

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