According to an article by Christina Rexrode for the Charlotte Observer published this morning, Bank of America will no longer be offering reverse mortgages. This controversial option has been seen as something that was marketed toward the elderly as a way to make quick cash. The only borrowers able to take advantage of a reverse mortgage have to be at least 62 years old.
It can be profitable and the homeowner won’t have to sell their home they may not be able to afford anymore – but because the bank pays the borrower instead of the other way around they end up losing equity in the end. The following is an excerpt from the Charlotte Observer article.
“The loans are often misunderstood. Borrowers do have to repay the bank, just not in cash: When they move or die, the bank sells the house and keeps the money, leaving out any heirs. The loans also carry high upfront fees, and a borrower can almost always get more money by selling the house instead. In general, reverse mortgages let borrowers access only 45 to 75 percent of the equity in their homes. The older the borrower, the bigger the percentage.
Guy Cecala, publisher of Inside Mortgage Finance, said that Bank of America is trying to minimize its exposure to potential lawsuits.
‘You’re dealing with the elderly, you’re talking about taking away their homes when they die,’ Cecala said. ‘That’s a bad set of variables there.’
Francisco, the bank spokesman, said the decision wasn’t related to any ethical qualms about reverse mortgages. The bank has worked with industry groups to put in safeguards to protect consumers, he said, and is ‘fully aware that it’s a very sensitive population.’
The reverse mortgage unit is profitable, he said. But the industry has been making fewer of the loans in the past year.
Various regulatory agencies have been eyeing reverse mortgages. Among other concerns, they wonder if borrowers are being forced to buy other financial products as a condition of getting the loans.”
To read the entire article, click here.
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