Bank of America will stop offering reverse mortgages, products that late-night TV advertises to the elderly as an easy way to get quick cash.
The move is meant to free up resources so the bank can focus on making traditional mortgages and helping struggling homeowners get modified mortgage loans, said spokesman Terry Francisco. It's also the latest of several big moves the bank has made to try to right its money-losing mortgage unit.
Reverse mortgages are useful to some borrowers, but they have many critics. In a reverse mortgage, the bank pays the borrower instead of the other way around, meaning that the borrower loses equity instead of building it. They're available only to borrowers who are at least 62 years old, and banks tout them as a way for seniors to get cash without having to sell a home they love.
But 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."
To read the complete article, visit www.charlotteobserver.com.
Comments