Wells Fargo & Co., the largest U.S. home lender, said it was exiting the business of reverse mortgages because of the possibility that property values will decline further, displacing as many as 1,000 employees.
“The decision was made based on today’s unpredictable home values,” the San Francisco-based lender said today in a statement distributed by Business Wire.
Reverse mortgages allow retirees to create a lifetime stream of income by tapping the equity in their homes. Lenders are repaid from the sale of the home when the borrower dies or moves. Bank of America Corp., the second-largest U.S. home lender, said in February it was retreating from the business because of “competing demands and priorities” at the Charlotte, North Carolina-based company.
“Why be in the reverse mortgage business if the equity that you’re lending, your collateral, is disintegrating?” said Terry Wakefield, a mortgage-industry consultant in Wisconsin.
Home prices slid 3.6 percent in the first quarter to the lowest level since 2003 in the S&P/Case-Shiller index of values in 20 U.S. cities.
The 1,000 employees in the business are invited to apply elsewhere in the company for jobs, according to the statement.
Wells Fargo will maintain its obligations on existing reverse-mortgage contracts, without originating new deals. The contracts represented about 1.2 percent of overall mortgage volume as of 2010, the company said.