Wells, Bank of America Go 'Reverse' Route

BOSTON (TheStreet) -- As 79 million Baby Boomers march toward retirement, Wells Fargo(WFC), Bank of America(BAC) and MetLife(MET) are there to offer reverse mortgages.

The three companies account for 52% of the retail and wholesale reverse-mortgage marketplace, according to Reverse Market Insight. Ten lenders, which also include Genworth Financial(GNW), make up 89% of the market.

Reverse mortgages may provide an attractive opportunity for the growing number of retirees looking to make additional money or reduce the likelihood of running out of money. Financial advisers have been saying Americans are ill-prepared for retirement, especially after the stock-market collapse and deep recession of the past two years.

The Federal Housing Administration's Home Equity Conversion Mortgage (HECM) program requires that borrowers be 62 years of age or older and either own their home or have a low enough mortgage balance that it can be paid off with proceeds from the reverse loan. Repayment is not required until the borrower either dies or stops living at the residence.

Borrowers can collect a lump-sum payment, monthly checks or installments at a size and frequency of their choosing. Neither the FHA (nor any reputable private lender) will take possession of the home's title while the loan is active. Heirs have first option to pay off the loan and keep the house once the loan is called. Otherwise, the lender takes possession of the property to satisfy the obligation.

Included in the Restoring American Financial Stability Act of 2010 is new oversight of reverse mortgages. The newly created Consumer Financial Protection Bureau is charged with conducting a comprehensive study of the industry to weed out unfair practices and deceptive marketing.

The bursting of the real-estate bubble has meant plummeting home prices and a reduction in the value of the properties that collateralize the loans. That has led to a projected $250 million budget shortfall for the FHA's reverse mortgage program -- a gap that could be partially reduced by a $150 million appropriation winding its way through Congress. Last year, the program was in the red by $798 million.

In response to the current environment, the reverse-mortgage market has become increasingly competitive, with numerous lenders reducing or eliminating upfront costs and recurring fees to attract new business. Origination fees, for example, are typically about 2% of the home's value and can cost borrowers thousands of dollars. With closing costs, monthly servicing fees and insurance requirements factored in, fees can add up to 10% of a loan.