Those of you that read my earlier post, “How to Choose a Reverse Mortgage Lender,” might recall that Bank of America is the second largest reverse mortgage lender by volume in the entire country. Thus, BofA’s news that it was exiting the reverse mortgage business came as nothing short of a shock.
Officially, the move is “due to competing demands and priorities that require investments and resources be focused on other key areas of our business.” In other words, its management made a strategic decision to refocus the company’s mortgage unit on its core business. While 10,000 loans a year and 5% market share made earned it the admiration of its competitors, reverse mortgages nonetheless represented only about 1% of overall mortgage lending and was really just an ancillary business for BofA. (By the way, BofA will continue to service its existing reverse mortgages).
Still, there aren’t many industries in which the company with the second largest market share and $4 Billion in annual loan volume would voluntarily quit, without first consider monetizing its business through either a sale or spin-off. For that reason, industry watchers have speculated that the decision was grounded more in Public Relations and Risk Management, than in business strategy. “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. That’s a bad set of variables there.’ ”
On the one hand, the fact that reverse mortgage lending actually declined in 2010 means it might be worth taking BofA at face value. On the other hand, the move also represents a calculated assessment that reverse mortgages have a tarnished image. Class action lawsuits – like the kind that conventional mortgagers are rushing to join – are probably unlikely. Still, BofA’s legal troubles continue to mount, and the company is being forced to adopt a more conservative approach to mortgage lending.
There are a couple of implications for the reverse mortgage industry. First of all, there is now a gaping hole, and it will be interesting to see whether it is filled by national reverse mortgage lenders are smaller, regional players. Second, it begs the question of whether BofA knows something that we don’t, and/or anticipates future problems stemming from its reverse mortgage lending operations. For now, Wells Fargo, the industry leader (now by an even larger margin) has no plans to follow suit. If it does, it will turn the industry on its head.