Much Needed Big Players Fill Void in Reverse Mortgages

A rising concern among the reverse mortgage industry has been the lack of liquidity in the market, but recent acquisitions could alleviate some of the pressure.

Over the last three months, two new publicly traded companies have entered the reverse mortgage industry: Walter Investment Management Corp. (NYSE: WAC) and Ocwen (NYSE: OCN).

“We see the entrance of these two companies bringing more capital to the industry,” says Michael McCully, partner with New View Advisors, financial services firm focused on advising within the reverse mortgage market. “More capital eases liquidity. There are others that are becoming issuers, and that’s helping too.”

For the last year, the industry has relied primarily upon the activity of just two companies—Reverse Mortgage Solutions and Urban Financial Group—to provide liquidity to the marketplace.

The most recent acquisitions in the market stand to solve—or at least partially solve—that problem with their big balance sheets and ability to issue Home Equity Conversion Mortgage-backed securities (HMBS).

Walter, which reported a total loan portfolio of $78 billion as of the third quarter of 2012 acquired Reverse Mortgage Solutions for $122 million, and stated at the time that it will expand its reverse mortgage presence.

“We are looking at extending the platform,” said Denmar John Dixon, vice chairman, executive vice president and director during a call with investors following the announcement of the deal.

Next came Ocwen, which is acquiring Genworth Financial Home Equity Access in a deal valued at $22 million expected to close in January, and which will involve changing the name of its reverse mortgage business to Liberty Reverse.

The entry of Ocwen (that’s “Newco” spelled backwards) means another approved HMBS issuer come January, adding to the small list of companies actively issuing the securities. Its $127 billion loan portfolio as of September 2012, plus a recent $3 billion acquisition of ResCap’s former servicing rights through a partnership with Walter, indicate the company is big and getting bigger.

The list is growing, but there is still much more room to improve when it comes to capital in the market, says John Lunde, president of Reverse Market Insight.

“Both are positive additions to liquidity for the industry, but I wouldn’t say it gets us out of the woods necessarily,” he says. “Ideally we’d have at least five to six very consistent issuers of significant HMBS volume, with several more operating at a lower level.”

Lenders including One Reverse Mortgage, Security One Lending and Live Well Financial have announced their approvals publicly. Some, including Live Well, have grown their issuance steadily, while others have not made substantial headway in issuing HMBS pools to date, an issue currently being addressed by Ginnie Mae’s executive team.

“Our account executives are following up to see what the issues are about people not wanting to issue,” Ginnie Mae President Ted Tozer told RMD in an October interview. “[We understand] that the true sale issue may be putting people off. People were banging down our door to get approved, and now they’re not issuing,” he said.

Others could be waiting for certain aspects of the program to become resolved, including changes to address reverse mortgage tax and insurance defaults.

“The defaults can cause headline risk for a servicer having to foreclose on the elderly,” Tozer said. “That has taken on more prominence.”

But every bit of additional capital helps and as a result, the outlook for 2013 is stronger than the past year in terms of liquidity, McCully says.

“More capital will prevent any additional problems from occurring,” he says. However, the new entrants do not fill the void left by the former players who were still in the market 18 months ago to not only provide liquidity, but large origination platforms as well.

“What would be nice for volume is a new nationwide brand with a massive retail footprint—a la Wells Fargo,” McCully says. “That isn’t out there right now.”

This edition of RMD Report is brought to you by Landmark, a leading national appraisal management and compliance company serving the reverse mortgage lending industry.

Written by Elizabeth Ecker

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