Developing Story on Wells Fargo Reverse Mortgage:
On August 3, AARP filed another lawsuit, as a purported class action, against Wells Fargo and Fannie Mae, challenging their HECM loan foreclosure practices. Under prior HECM rules (Mortgagee Letter 08-38, December 5, 2008), lenders required heirs of borrowers to pay off the full loan balance upon maturity of HECMs when the loan balance was greater than the home value. HUD recently changed its rules in this area (Mortgagee Letter 11-16, April 5, 2011), in response to the lawsuit on this issue also filed by the AARP, which was recently dismissed on procedural grounds by the federal District Court in Washington, DC. Under rules prior to December 5, 2008, and as recently revised on and after April 5, 2011, if the HECM loan balance is greater than the home value, heirs have the ability to keep the home by paying 95% of its then appraised value.
The new lawsuit proposes as a class all borrowers under HECM loans of Wells Fargo and Fannie Mae, and their heirs and/or estates, who were not given the “95% right” and whose homes were sold at foreclosure without the right to purchase their homes for 95% of the then appraised value. The suit also asks for a sub-class of all such persons whose homes were located in California. This class, if confirmed, would appear to cover all borrowers whose loans were sold to Fannie Mae by Wells and others, but apparently not loans placed into Ginnie Mae MBS securities.
The suit asks for a declaratory relief that defendants not be permitted to foreclose on such class members unless and until the borrowers (or their heirs or estates) are given the “95% right,” and it alleges breach of contract, and unfair and deceptive acts and practices claims under California law. The suit also requests a jury trial.
While the suit is very new, and its too early to tell what course it will take, HECM lenders and servicers should review their practices with counsel and assure that they are in compliance with all HUD HECM program guidelines in this area, including but not limited to HUD’s most recent pronouncements.
To view a copy of the lawsuit, please click here
Wells Fargo Exits Reverse Mortgages
A Reverse Mortgage Loan Officer from Wells Fargo Bank, the leading reverse mortgage lender in the nation, just informed us that Wells Fargo announced to their staff that they will close down their reverse mortgage lending. He told us that no reason given to him for the exit but there is much speculation that it all revolves around the high default rates due to borrowers not paying their taxes and insurance. We will have to follow up with additional information here as we receive it.
Even with competitive issues, no one is happy to see Wells Fargo exit the reverse mortgage market. The immediate knee jerk reaction will be that there will not be as many mortgages to trade in the secondary market or lenders to fill the void. Therefore, pricing which has been extremely favorable in the recent months is subject to immediate and massive swings. We have already seen pricing increases this morning of 6% in fee! Hopefully after the dust settles and lenders have the opportunity to catch their breath and put their procedures in place, as well as see what transpires in the secondary market, the pricing will return to recent favorable lows.
Wells Fargo had held by far the greatest market share in this product and had previously pulled back its wholesale production of reverse mortgages earlier this year. In an announcement by Kathleen Vaughan, Executive Vice president of Wholesale Lending, dated March 1, 2011, Wells Fargo announced to their Broker Partners that they intended to focus on their forward lending for operational purposes. But with this new announcement, could this actually have been the beginning of the end of reverse mortgage lending at Wells Fargo?
Whether there were other issues that led to Wells’ ultimate decision to exit the market is subject to speculation. With the footprint across the nation and name recognition, they had access to a tremendous customer base and their numbers verified that they did a good job accessing those individuals. As an outsider looking in and talking to many Wells Fargo customers seeking to transfer their loans mid-process, I suspect that Wells Fargo may have been more successful than their systems could handle.
Wells earned some disdain among competitors and some senior borrowers over their unwillingness to allow borrowers to transfer cases in accordance with HUD guidelines by holding hostage the Wells Fargo-owned Appraisal Management Company (AMC) appraisals. HUD maintained procedures by which borrowers were allowed to change originators if they did not like the service they were getting or found a better deal somewhere else and most originators honor their customers’ wishes by “transferring” an FHA case number to the new originator of the consumers’ choice when requested. Wells Fargo Reverse often delayed this process and then after the case number was eventually transferred, if the appraisal had been completed by their company owned AMC, RELS, the AMC would refuse to work with any other lenders stating that they received their order from Wells and would not supply an appraisal to anyone else, correct any appraisal mistakes for anyone else, or complete any lender requirements for any other lender rendering the appraisal useless to other originators. Borrowers would wait in frustration until they could wait no longer and finally go back to Wells Fargo for the worse deal simply because their appraisal was held hostage and other lenders could not complete the transaction under HUD’s requirements.
For the sake of the borrowers who rely on the availability and the affordability of the reverse mortgages, we can only hope that the market settles quickly.
“Wells Fargo Reverse Mortgage Closes” by www.reverse.mortgage
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By Michael G. Branson