Risks in Reverse Mortgage Market Lead to Wells Fargo Exit

Bloomberg reports that Wells Fargo Bank is exiting the reverse mortgage market.

Wells is apparently concerned about the risk of further declines in residential real estate prices.

A reverse mortgage puts a bank like Wells Fargo in the role of lender with the home serving as the asset or collateral for the loan.

Further declines in home values put the bank at risk since the asset base against which they are lending is shrinking while their obligation stays the same.

A deflationary environment is clearly a disaster for a bank in the reverse mortgage business.

The decision by Wells Fargo to exit the reverse mortgage business will impact up to 1,000 bank employees.

Source: Bloomberg

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