Wells Fargo & Co. (NYSE: WFC) is one of the “Too Big To Fail” banks.  Now it is going to be known as the “Too Big To Reverse Mortgage” bank.

Today came the announcement that its Wells Fargo Home Mortgage unit will discontinue origination of its Home Equity Conversion Mortgages operations.  These are the classic reverse mortgages that you see advertised from time to time. This marks just over 20 years of effort in reverse mortgages and the funded volume of reverse mortgage business was approximately 2.2% of its total retail mortgage volume in 2010 the bank noted that it represents about 1.2% of overall mortgage volume.

What is interesting, and perhaps unknown by many, is that the unit is a U.S. Department of Housing and Urban Development reverse mortgage program that was designed for senior citizens in 1987.   Reverse Mortgages are insured by the federal government through the Federal Housing Administration and they cap at $625,000.00 in a maximum loan limit.  Reverse mortgage holders have to be 62 years old and own the home to qualify.

Cited for the exit are  unpredictable home values and the restrictions associated with reverse mortgages which make it difficult to determine seniors’ abilities to meet their financial obligations of homeownership and their reverse mortgage.

Wells Fargo even noted, “The government’s HECM or reverse mortgage program was designed in a different economic time.”

Too big to profitably lend…. Perhaps the other issue is that Wells Fargo just can’t afford to take on any more houses on its books at the end of the reverse mortgage contracts.

JON C. OGG

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