MetLife was jumping over dollars to get to dimes.
That’s how the huge life insurance company viewed reverse mortgages and, helped along by a slap on the wrist, was the ultimate reason it decided to get out of the reverse mortgage business.
The Metropolitan Life Insurance Company is one of the world’s biggest providers of annuities, life insurance and employee benefits. Sixty days ago, it also was the largest single provider of reverse mortgages in the United States and was expected to continue in that role, thanks to the exits from the industry by Bank of America, Wells Fargo, Financial Freedom and Seattle Mortgage.
Including home-equity conversion mortgages (HECM) endorsed by the Federal Housing Administration and proprietary reverse mortgages, MetLife Bank closed 1,047 reverse mortgages in March, more than any other company, but down from 1,289 loans in February.
Last year, after Wells jumped ship, MetLife saw itself as the cleanup hitter in a rather weak reverse mortgage lineup. It had lower pricing for its products and took the lead in the industry’s lower-risk offering, the HECM Saver. But in April, 2011, the Office of the Comptroller of the Currency announced formal enforcement actions against MetLife and seven other national lenders for "unsafe and unsound practices related to residential mortgage loan servicing and foreclosure processing."
Under the terms of consent orders with the lenders, each was required to make "significant improvements in practices for residential mortgage loan servicing and foreclosure processing, including communications with borrowers and dual-tracking," and to "remediate all financial injury to borrowers caused by any errors, misrepresentations, or other deficiencies" identified by an independent consultant.
Obviously, the potential liability from mortgage lending did not go over big to a corporation whose bread and butter is life insurance. When the powers that be stood back and took a look at mortgages, especially reverse mortgages, they determined that segment did not even amount to a rounding error in the company’s big picture. Why not concentrate on insurance and annuities? So, it got out of mortgage lending and the reverse industry lost another player.
"We are disappointed to hear MetLife is exiting the reverse mortgage business," said Martin J. Taylor, president of Bellevue, Wash.-based Stay In-Home (SIH), a reverse mortgage lender. "Anytime a quality company like MetLife exits a business segment, it opens the door of opportunity for others. SIH has been educating and assisting seniors in the Northwest since 2006 and has helped (more than) 3,000 seniors with reverse mortgages. We are ready to assist our senior community any way we can."
A reverse mortgage enables senior homeowners to convert part of the equity in their homes into tax-free income without having to sell the home, give up title, or take on a new monthly mortgage payment. Reverse mortgages are available to individuals 62 or older who own their home. Funds obtained from the reverse mortgage are tax-free.
Reverse mortgages funds can be distributed either in a lump sum, regular monthly payments, line of credit, or in a combination of those options. When the house is sold, or the last remaining borrower dies or moves out of the home, the loan amount plus the accrued interest is repaid. The borrower can’t owe more than the value of the home.
While BofA and Wells Fargo imply that their reverse mortgage operations simply "didn’t scale" compared to the rest of other lending opportunities, they also were hit by last year’s OCC actions. In addition, with home values down and equity dwindling, it wasn’t a bad time to get out of an equity product — especially if it was targeting cash-strapped seniors.
Now, with home values probably on their way back up and the number of seniors rising every day, smaller reverse mortgage lenders see a growing niche that needs to be filled by a fewer number of available players.
According to the United States Bureau of the Census and the National Center for Health statistics, 80 percent of the older population — persons 65 years of age and older — own their own homes, and 73 percent are owned free and clear of any mortgages, amounting to nearly $1.9 trillion in home equity.
While there were some huge mistakes with the early reverse mortgages that were compounded by a few bad operators, today’s product is a needed, helpful tool that provides thousands of seniors access to funds otherwise untouchable. How many conventional lenders will grant a loan to a 70-year-old with no income?
Reverse mortgage rates and fees have come down. Fixed-rate programs are now in place. There is no other product where greater care is given, more counseling is mandatory and more questions are answered before anything is done.
And now, there are fewer places to get them.
Tom Kelly’s new e-book, "Bargains Beyond the Border: Get Past the Blood and Drugs: Mexico’s Lower Cost of Living Can Avert a Tearful Retirement," is available online at Apple’s iBookstore, Amazon.com, Sony’s Reader Store, Barnes & Noble, Kobo, Diesel eBook Store, and Google Editions.
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