I will never forget working the morning shift at Lake Mission Viejo back in 1990 when I opened the paper to see the words, “Buster Douglas shocks the world.” I don’t know if a headline has ever gripped me with such surprise since then, but the sudden exodus of Wells Fargo from the reverse mortgage industry is definitely up there. So what does all this mean?
Is this the beginning of the end for reverse mortgages or have we just entered the Twilight Zone of small business, something like a new and improved cottage industry? I have always felt like these mammoth brand names have the inside scoop and I always watch them closely. Wells’ recent Houdini act seems a bit out of character and doesn’t bode well for all of us in the arena. We may have just seen the last big carrier leave port and now we are left with a couple good-sized battleships to protect the mainland.
I can only speculate why Bank of America and Wells Fargo decided to ride into the sunset, but the speed of the exit is not comforting. Truth be told, if you want to know the future, it lies in the secondary markets and how this product will be perceived by investors. On the Friday after the announcement, with great anticipation, there were a couple of trades done and the word is that they went relatively well. By the time you read this article the picture should already be much clearer, but unfortunately I don’t have a crystal ball right now. I can only imagine that the fixed rates will suffer a little, probably somewhere in the 100 basis point range, while LIBOR takes it on the chin. The property tax and insurance situation is getting a lot of attention and the feeling is that nobody wants to foreclose on a senior even though the market demands it. I have a feeling the next thing coming down the pike is a credit qualifier for the senior. Maybe it won’t be a FICO score, but it will be an underwriting condition that will ensure the senior has enough income to cover their taxes and insurance. Social Security income will hopefully be sufficient for most, but if it isn’t, the benefit of the reverse mortgage will be severely reduced to allow for impounds… sidelining the dough like the servicing fee did in the past. This type of restriction could possibly reduce the number of HECMs, but the alternative is scarier: no investor interest for fear of the growing tax and insurance problem.
So tomorrow will bring a new day with two of the industry’s biggest players gone. The sun will rise and shine on MetLife like never before. Snoopy has now been thrust into pole position with Urban right behind, licking its chops. Opportunity has never been larger for these guys and hopefully they will achieve more than their predecessors ever dreamed. I hope there will be a vacuum effect and that clients will reach out past their depository institutions for assistance in obtaining a reverse mortgage. We need companies that can build a reverse mortgage platform for the future and create a bridge large enough for all of us to cross. We are definitely in some interesting times. Stay strong and have faith … Mike Tyson was just inducted into Boxing’s Hall of Fame.