Bank of America Exits Reverse Mortgage Business

reverse mortgageBank of America, the second largest reverse mortgage lender in the country behind Wells Fargo, is shutting its doors to reverse mortgages so that it can focus on its core business. The North Carolina-based lender will continue to serve those who already have an existing reverse mortgage with it.

Its decision to exit had a lot to do with declining property values, lost income, and its small share of its overall business, according to data and experts, including a Bank of America executive, who spoke with AOL Real Estate.

The bank's retail channel, which operates the reverse mortgages, was down 29.4 percent last year and controlled 9.4 percent of the market, reported Reverse Mortgage Daily. Its wholesale business was also down 25.7 percent during 2010, though it controlled 18.3 percent of the wholesale market.

"Our reverse mortgage business was profitable bit it was small," Bank of America spokesperson Terry Francisco told AOL Real Estate in a phone interview. "We produced over $300 billion in total [consumer] loans, but only $4 billion in reverse mortgages. We have about 14 million customers overall, but only 100,000 reverse mortgage customers."

"Bank of America has had some serious financial problems in the last five or six years," Houston-based financial advisor Mallie Daniel of Wealth Creation Advisors told AOL Real Estate.

"They can have all of these reverse mortgages on the books, but they have zero coming in [on it until it comes due]. They don't see their money until [any owners] have died. It could be 30 or 40 years until they get their money. The more these mortgages they put on the books, the more money they are going to put out to somebody without any money coming in. I don't think Bank of America could withstand much of that anymore."

Via a press release issued on Friday, Doug Jones, Consumer Sales and Institutional Mortgage Services executive for Bank of America Home Loans, said: "We made the strategic decision to exit the reverse business due to competing demands and priorities that require investments and resources be focused on other key areas of our business."

"I am a little surprised that they exited the business," says Neil Garfinkel, a partner at New York law firm Abrams, Garfinkel, Margolis Bergson, in charge of its real estate and banking practices. "I've been closing reverse loans for longer than 15 years. I am a big fan of the product. I think part of the problem is the reverse mortgage is based on property values and right now we are certainly at a flux of not knowing where property values will go in the future. It is hard for a lender to make a loan not knowing where property values will be. That's a problem for the reverse mortgage industry."

Reverse mortgage loans are typically non-recourse loans, which means even if the value of the
reverse mortgage
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property drops lower than the amount of the loan, the lender can't go after heirs for the difference.

Created by the Housing and Community Development Act of 1987, a reverse mortgage allows a homeowner age 62 or older to obtain money by accessing the equity available in their home tax-free and with no requirement that it be paid back until the borrower dies or chooses to sell the home. There are no monthly payments of principal or interest with a reverse mortgage, and closing costs can be folded into the loan itself.

According to the AARP, ever since about 2008 and through 2013, approximately 10,000 people will be turning 62 every day, making them eligible for a reverse mortgage, with the number of potential borrowers growing each year.

Francisco says that although there is a growing number of seniors, but fewer are actually qualifying for a reverse mortgage because of the lack of sufficient equity in their homes due to the declining home values.

He says the lender's experienced mortgage loan services will be more valuable to the company helping to process mortgage modifications, and that's where many of them in the company will be redirected. The departure from reverse mortgages also "will help the other parts of our business we think is a bigger priority, which includes servicing, purchases and refinances."

However, any customer who is currently having their reverse mortgage processed will not have to worry, he says. "If you currently have a loan in process we will see that through and do our best not to inconvenience anyone in the process."

"Folks who get a reverse mortgage are on a limited income," says Brian Coester, CEO of Coester Appraisal Group, a company that includes reverse mortgage appraisals among its specialties. But not everyone who applies for one, gets one. "Paying a couple hundred nonrefundable dollars just to see if a transaction is possible can be a huge financial burden for them," he tells AOL Real Estate.

But it's also a burden for the lenders, says NY-based real estate attorney Ed Mermelstein. "Most conventional lenders are going to be hesitant.

"Anything that is unusual or creative, lenders are running away from," says Mermelstein. "A typical mortgage is hard to get approved. I just don't think there was a market that was viable from the lender's perspective."

Bank of America Home Loans entered the reverse mortgage business in 2006 and expanded its presence in 2007 following the acquisition of Reverse Mortgage of America in 2007 and Countrywide Financial Corporation in 2008. It also acquired Seattle Mortgage's reverse mortgage division in 2007 for $220 million, which included a portfolio of over $4 billion reverse mortgages, approximately 400 SMC employees as well as a retail sales force of more than 200 associates in 25 states. (Two executives from SMC are now suing BofA in a case that is set to go to trial April 9), according to the Puget Sound Business Journal.

reverse mortgageSheree R. Curry, who has owned three homes but is not old enough for a reverse mortgage, is a three-time, award-winning journalist who has covered real estate for six years. During her 20-year career, her articles have appeared regularly in the Wall Street Journal, TV Week, and Fortune. She's been with AOL Real Estate since 2009 and seeks a book publisher -- or at least a lender who'll give a reasonable mortgage rate to a self-employed mom.

For more insight on mortgages and refinancing see these AOL Real Estateguides:

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