As two of the largest financial institutions have announced their exit from the reverse mortgage industry, MetLife has surged ahead to claim the #1 spot. Last week, Bank of America and Wells Fargo declared they will no longer be offering reverse mortgages. Claiming that “unpredictable home values” have made the reverse mortgage business too risky, Bank of America and Wells Fargo shocked the industry with the announcement of their departure. Today, you can find an advertisement on the MetLife website claiming their new top service being offered.
The Reverse Mortgage Risk
The unsecured future of reverse mortgages stems from applicant qualification issues, declining property values and increases in loan defaults and foreclosures. When the home’s equity is borrowed against in a reverse mortgage, the payments are not required to be repaid until the borrower moves, sells the home or becomes deceased. The lenders typically rely on the hopes that they make money when the home is sold as repayment for the loan, which becomes problematic when the value of the home declines. Many reverse loans end up in default as the borrowers ability to repay the loan is not allowed to be assessed prior to approving the loan. Banks were finding it increasingly difficult to legally deny loans and were providing loans to many borrowers that couldn’t repay the loan on a home whose value had declined significantly.
Many are asking why MetLife is working so hard to be on top of an unsteady industry. Having entered the market in 2008, they experienced the good times of 2009 when the reverse mortgage industry hit the highest level of demand in years. Their loans are also backed by government owned insurers. If the loans that are issued by lenders like MetLife are sold to investors, MetLife stands to make a profit off the fees charged to investors to monitor the home collateral and ensure terms of the contracts are met. Despite having recently pushed to the forefront, MetLife has been steadily climbing to the top of the industry since their arrival in 2008. The departure of Bank of America and Wells Fargo has allowed them to zoom to the top much faster than they expected.