Bank Of America Reverse Mortgage
Bank of America reverse mortgage practices began in May 2007 when they acquired Reverse Mortgage of America from the Seattle Mortgage Co. The purchase was made for an undisclosed amount and it was finally concluded near the end of June. The new unit was placed under Bank of America's home equity group, which is a frontrunner in the home equity market, with over $90 billion in outstanding balances. This entry into the market propelled Bank of America into the third largest company offering reverse mortgages, trailing only Financial Freedon and Wells Fargo and Co.
The timing of the acquisition by Bank of America was very interesting in that the housing market was very precarious and an increasing number of consumers were second guessing their actions of tapping into their home equity. While the housing market was in the biggest slump in over 15 years, housing value is still up nearly 50% since the start of the decade, which means there is still plenty of equity for the current home owners. There is only a growing reluctancy to tap these funds due to uncertainty surrounding the economy and also the tightening lending guidelines. Bank of America does not seem to be bothered by these speculations.
A reverse mortgage is a loan aimed at senior citizens and it allows funds to be taken out against a home's equity and through which borrowers receive the dollar-value of their property via an untaxed lump sum or monthly payments. Borrowers must be at least 62 years old to be eligible, but the lending 'sweet spot' is really closer to 80 years old. With finance costs typically ranging from $25,000 to $50,000 on a $250,000 loan, most people are usually around that age by the time their equity has matured enough to make the fee-to-benefit ratio worth it.
Bank of America officials view was that reverse mortgages have a unique lending criterion since they involve a borrow-base that is relatively isolated from the macro concerns of the mortgage industry. There was an increase in reverse mortgage lending during the first quarter of 2007, according to industry statistics. Such lending contributed to $44 million worth of mortgage income and a 26% return on equity from overall mortgage production. Bank of America reverse mortgage unit hopes to tap into this rising market and to provide a competitive product for its customers and a solid profit for its investors.
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