Wholesale and correspondent mortgage lender and servicer Home Point Capital, Inc. filed for an initial public offering (IPO) through an S-1 with the Securities and Exchange Commission (SEC) late last week, the latest mortgage entity aiming to become publicly traded on the New York Stock Exchange (NYSE).

Home Point, which owns an equity interest in leading reverse mortgage lender Longbridge Financial, has in turn cited the possibility of changes to the Home Equity Conversion Mortgage (HECM) program sponsored by the Federal Housing Administration (FHA) as a potential risk to its business in the IPO filing, particularly due to ways in which HECM program changes could affect the business of Longbridge as well as how other lenders in the space operate.

The IPO

Though the IPO intention is now public, there are some elements of the offering itself which have not yet been finalized.

“The number of shares of common stock to be offered and the price range for the proposed offering have not yet been determined,” according to a press release issued by Home Point about the impending IPO. “The offering is subject to market conditions, and there can be no assurance as to whether or when the offering may be completed, or as to the actual size or terms of the offering. Home Point Capital has applied to list its common stock on the NASDAQ Global Select Market under the ticker symbol ‘HMPT.’”

Goldman Sachs, Wells Fargo, Morgan Stanley and UBS Investment Bank are acting as lead book-running managers for the proposed stock offering, according to Home Point’s announcement.

When reached for comment, Longbridge expressed excitement about the IPO for Home Point.

“We are excited to see the S-1 as the next step in Home Point’s development as a company,” said Chris Mayer, CEO of Longbridge in an email to RMD.

Reverse mortgage business, ‘risk’ of changes

Home Point Financial owns a 49.7% equity interest in Longbridge Financial, a business which is prone to change due to the sponsorship of the HECM program by FHA and the U.S. Department of Housing and Urban Development (HUD). Recognizing this, the company has included potential HECM program changes that could affect Longbridge as a potential risk factor in its prospectus as filed with the SEC.

“The reverse mortgage industry is largely dependent upon the [FHA], and HUD, and there can be no guarantee that these entities will continue to participate in the reverse mortgage industry or that they will not make material changes to the laws, regulations, rules or practices applicable to reverse mortgage programs,” the company says in its filing. “The reverse mortgage loan products originated by Longbridge Financial, LLC are Home Equity Conversion Mortgages, or HECM, an FHA-insured loan that must comply with the FHA’s and other regulatory requirements. Longbridge Financial, LLC also originates non-HECM reverse mortgage products, for which there is a limited secondary market.”

The section goes on to explain how certain reverse mortgage program changes have led to material impacts on the business and the lenders that operate within it, beginning with the implementation of legislation as passed by the U.S. Congress in 2013 and signed into law by then-President Barack Obama.

“[O]n September 3, 2013, the FHA announced changes to the HECM program, pursuant to authority under the Reverse Mortgage Stabilization Act,” the relevant section reads. “The changes impact initial mortgage insurance premiums and principal limit factors, impose restrictions on the amount of funds that senior borrowers may draw down at closing and during the first 12 months after closing and require a financial assessment for all HECM borrowers to ensure they have the capacity and willingness to meet their financial obligations and the terms of the reverse mortgage.”

These changes also required a set-aside for property taxes and/or homeowners insurance based on financial assessment results, the section explains. It goes on to detail other instances of change including the publication of three Mortgagee Letters (MLs) in 2014, restricting elements of reverse mortgage advertising, payment methods, loan provisions, the treatment of non-borrowing spouses and others.

As a lender operating in the reverse mortgage space, Longbridge could be impacted as a result of changes that the government wishes to implement, the filing says.

“The FHA has continued to issue additional guidance aimed at strengthening the HECM program,” it reads. “Most recently, the FHA issued a Mortgagee Letter changing initial and annual mortgage insurance premium rates and the principal limit factors for all HECMs. The reverse mortgage business of Longbridge Financial, LLC is also subject to state statutory and regulatory requirements including, but not limited to, licensing requirements, required disclosures and permissible fees. It is unclear how the various new requirements, including the financial assessment requirement, will impact the reverse mortgage business and ultimately, our investment in Longbridge Financial, LLC.”

Another potential risk as detailed by Home Point could arise from the actions of other reverse mortgage companies, the filing states. Many of the changes placed on the reverse mortgage program have been made with an eye toward enhancing borrower protections, who have faced foreclosures and evictions.

“[This has] led to adverse publicity in the reverse mortgage industry, negative publicity due to actions by other reverse mortgage lenders could cause regulatory focus on the business of Longbridge Financial, LLC,” the filing reads.

Other risks, recent history

Other potential risks to Home Point by going public beyond the reverse mortgage component might include the ongoing issues related to the COVID-19 coronavirus pandemic; possible termination of one or more of its financing facilities; a potential requirement to repurchase mortgage loans or indemnify investors; or adequately manage a large influx of mortgage volume.

Home Point first began its association with Longbridge in late 2016, making its investment in the reverse mortgage lender alongside Ellington Financial at that time. The following year, Home Point sold its own reverse mortgage lending arm to Michigan-based Huron Valley Financial, which folded the former Home Point reverse division into its own 1st Nations Reverse Mortgage arm. Subsequently, 1st Nations Reverse was acquired by University Lending Corp in 2019.

A request for comment from Home Point on wider potential impacts of the IPO on its reverse mortgage activities was not returned as of press time.

Read the SEC filing at the agency’s website.

This story has been updated with a statement from Longbridge Financial CEO Chris Mayer.