Discover the Financial Principles of the Bible

Are Reverse Mortgages Going Away?

Wells Fargo announced this week that they would no longer be offering reverse mortgages. This is major news to individuals considering a reverse mortgage, because Wells Fargo had been the largest provider of reverse mortgages. It also follows a similar announcement in February by Bank of America which had been the second largest provider of reverse mortgages.

With the two largest providers exiting the market, it will become increasingly difficult for consumers to obtain a reverse mortgage.

A reverse mortgage allows older Americans to borrow against the equity in their homes. Since it works in “reverse” to a typical mortgage, the borrower receives either a lump sum or a monthly payment from the bank. The mortgage itself accrues and is not actually payable until the death of the borrower.

The unpredictability of housing prices has made these types of loans difficult to assess. A reverse mortgage based on a home’s value today may end up being worth far less in a few years. This is quite different than in years past when the prevailing wisdom was that home values always increase in value.

Another major consideration for these banks is that they are not allowed to assess the borrower’s ability to repay their reverse mortgage. The loan approval is determined solely on the borrower’s current home equity. However, there are several factors that will affect how much could be borrowed.

There has never really been any consensus as to whether reverse mortgages were good or bad. They often entailed very high closing costs and simply shifted the debt burden onto a person’s heirs. That hardly seems to be the financial wisdom of the Bible.

“A good man leaveth an inheritance to his children’s children….” Proverbs 13:22.

Filed in: Christian Finance, Debt & Credit, Family Finance, Stewardship

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