Two big banks quit the reverse mortgage market. What is the impact on the retirees?
There's big news in the recent housing market that 2 big banks have quit the reverse mortgage market and will not offer this particular product anymore. The booming question in
everyone's minds is how this will affect the seniors and the retires. It is a well-known fact that the seniors mostly resort to reverse mortgages as this is the best way to get
access to immediate cash with which they can repay their other debt obligations, renovate their home and also meet any other purposes. But as the 2 big banks have bowed out of
the reverse mortgage market, there will be fewer avenues to secure their retirement income.
Wells Fargo, the biggest reverse mortgage lender in the US has recently declared in the
initial part of August that they will stop originating reverse mortgage loans as a result of unbendable government regulations and other concerns like the prediction of the
fall in the home prices. Wells Fargo's announcement has even boosted the Bank of America to make the move of quitting the market too in 2011. Researchers of the Reverse
Mortgage Insight say that in the month of April, the two banking giants collectively issued 45% of reverse mortgages.
Though it is a fact that reverse mortgages occupy a small percentage of the big picture of the lending landscape, about 116,000 loans were already registered with the books of the banks during 2009, the stringent credit standards that were applicable for the traditional mortgages with the drop in the retirement portfolio had suddenly heightened the demand for reverse mortgages, even though the recession has drained down the equity from most American homes.
Reverse mortgages are the financing options that most seniors resort to when they do
not have enough savings to repay their debt but have built up enough equity in their homes. Homeowners who are above 62 years of age can apply for reverse mortgages and such
loans allow them to borrow money in order to create an income stream either in a lump sum or regularly in some scheduled payments. The borrowers of this loan may continue to
live in their home and enjoy all facilities. They have to pay the insurance premiums, property taxes and also maintain the home adequately.
In order to boost the homeowners, the government needs to boost the program so that an increasingly large number banks and legitimate financial institutions still participate in the program. As most retires are not well-prepared for their retirement, the government must take some immediate steps to help the retires get their hands on their reverse mortgage loans.