You might think that reverse mortgage lenders and banks, with their gobs of protective equity, would be immune to the Wall Street mortgage lending crisis. After all, how bad could the default rate on a home loan with no payments and at 40% to 50% LTV be? Tell that to the Wall Street bears.
Since investors (so far) cannot own a separate reverse mortgage security, they are exposed to the overall health – or lack thereof – of the bank. Did you see Indy Mac Bank’s stock price this morning? Analysts are targeting a zero dollar value for it. IMB’s Financial Freedom arm is, or was, the largest non-FHA jumbo reverse mortgage lender in the country. FHA products, of course, are doing just fine because Fannie Mae buys them.
With investors valuing IMB’s stock so low and their cash flow suffering, there is no liquidity to fund their proprietary reverse mortgage, the Cash Account Advantage. As a result, IMB pulled their Cash Account program for brokers last month, though it reportedly is still available through their retail reverse mortgage channel, Financial Freedom. Their recent exit from mortgage lending appears to apply only to their “forward mortgage” business. Bank of America, who acquired Reverse Mortgage of America last year, stopped offering their jumbo reverse mortgage product earlier this year. Other recent jumbo reverse mortgage casualties include Ever Bank, JB Nutter and Countrywide.
With all of these deaths in the non-FHA reverse mortgage battle, jumbo reverse mortgages are becoming scarce. The largest reverse mortgage lender, Wells Fargo, does not have their own jumbo program, but formerly brokered out the Cash Account product. Now, the few remaining non-FHA reverse mortgage lenders are scrutinizing deals like you would not believe – or perhaps you would. Look out for cutting values, LTV reductions and any other excuse not to fund. Only the squeaky-clean, lowest LTV deals are receiving funding.
At least we still have FHA’s reverse mortgage, the Home Equity Conversion Mortgage (HECM). It has relatively low lending limits and requires expensive FHA insurance, but liquidity does not yet seem to be a problem.
Luke Helm
Reverse Mortgage Pro
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