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Default Risk in Reverse Mortgage Sector Prompts Lender Exodus

Reverse mortgage businesses account for a bigger share of this year's mortgage-related casualties.


The ""Mortgage Graveyard"":http://www.mortgagedaily.com/MortgageGraveyard.asp?spcode=graveyard hosted by ""MortgageDaily.com"":http://www.mortgagedaily.com provides details on failed or closed mortgage-related firms.

Analysis released Tuesday shows that Bank of America, OneWest Bank's Financial Freedom, and Wells Fargo pulled out of the reverse mortgage lending market earlier this year.

Together, these three lenders accounted for about 46 percent of the market for Home Equity Conversion


Mortgages (HECM), the Federal Housing Administration's reverse mortgage program.

The study noted that one factor impacting the dwindling sector is the possibility that missed payments of taxes or insurance by a borrower could trigger a default on federally insured reverse mortgages.

""[L]enders don't want to be in a position where they would have to foreclose on a senior,"" according to _Mortgage Daily_.

During the first six months of this year, a total of 74 mortgage-related firms have failed or shut down their operations, _Mortgage Daily_ says. Over the same period last year, the tally was 109.

Fewer banks have failed compared to last year at this time, but the same can't be said for credit unions.

Forty-eight banks insured by the FDIC went under during the first half of 2011, down 44 percent from the 86 that failed in the January to June timeframe last year.

The 16 credit unions seized by the National Credit Union Administration this year represent a 45 percent increase over the 11 that were closed during the first half of 2010.

Non-bank closing tally 10 so far this year, compared to 12 for the same period last year.

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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