Growing Reverse Mortgage Industry Beckons Former Subprime Loan Officers
What are subprime mortgage specialists looking for employment to do? In this struggling market, many are turning to the world or reverse mortgages.
Between 12,000 to 15,000 displaced mortgage lenders may begin to seek employment in the growing market for reverse mortgages, an increasingly popular home equity loan for homeowners who are 62 years old or older, Goldman, Sachs & Co. Research and Wells Fargo Home Mortgage executives said at a mortgage conference.
“A percentage of them will migrate into the reverse mortgage business, but it’s very specialized,” Jeffrey Taylor, Wells Fargo’s vice president of senior products, said during a Mortgage Bankers Association conference in New York.
To some insiders, rapid growth of reverse mortgages may make individuals vulnerable to fraud and increased litigation, the same issues that have plagued subprime loans; i.e. mortgages to those with weak credit histories.
Rolf Edwards, a vice president at Goldman, Sachs & Co. in New York, asked the basic question: “As you look at what’s going on in the subprime market, are those the types of folks who are really appropriate for pursuing reverse mortgages?” asked
Trouble in the U.S. mortgage market is a key concern as the housing industry slowed and default rates in the riskiest subprime home loans climbed in recent months. At least 20 lenders of subprime mortgages have already gone out of business.
Meanwhile, the number of federally insured reverse mortgages has skyrocketed, climbing to 76,351 in 2006, from 7,781 in 2001. So-called HECM loans, or Home Equity Conversion Mortgages, make up 90 percent of such securities in the U.S., according to the National Reverse Mortgage Lenders Association.
At Wells Fargo, about 700 loan officers specialize in reverse mortgages. The other 10,000 loan officers cannot make the loans due to their complexity, Taylor added.
The loans allow senior citizens to borrow against the equity in their homes and convert it into cash. Loan advances are not taxable, and loans don’t have to be repaid until the homeowner moves, sells or dies, which the industry calls a “maturity event.”
Reverse mortgages are popular because older homeowners can tap the home equity loan to pay medical bills or boost retirement income while staying in their homes. The loan is typically paid back with profits from the home sale, either when the homeowner dies or moves.
More consumer safeguards and better education and counseling will be needed as this unique home mortgage market matures, according to Vanessa Farnsworth, a senior manager at Bank of New York Mortgage Co.
“We try to educate the family as well as their heirs,” Farnsworth said. “It’s in no one’s best interest when 10 years down the road the family says no one knew what Ma and Pa were doing.”
SOURCE: Reuters