Walter Investment Bullish on Reverse Mortgage Market Opportunity

Walter Investment Management Corp. (NYSE: WAC) remains optimistic of its future growth in the reverse mortgage sector, according to comments made by company executives during a conference this week.

Following a $56.5 million goodwill impairment charge related to its reverse mortgage business for the second quarter ended June 30, 2015—which contributed to the company’s net loss of $38.1 million during the quarter—and a recent settlement with the Department of Justice regarding Reverse Mortgage Solutions (RMS), the company’s reverse mortgage servicing arm, Walter remains bullish on its reverse mortgage platform.

The optimism is due to a “comprehensive review” Walter took on its reverse mortgage business—comprised of the RMS and Security One Lending platforms—which included the company making changes to this business segment and “re-forecasting” long-term cash flows, said Gary Tillett, executive vice president and chief financial officer at Walter, during the Barclay’s Global Financial Services Conference in New York on Wednesday.

“We feel good about the business,” he said. “We feel good about the platform and the space, and we’re looking forward to improving the company’s results in the future.”

Walter’s reverse mortgage channel encountered some challenges during the second quarter, including generating nearly 50% lower revenue compared to year-ago levels, but also in the third quarter, following the $29.63 million settlement to resolve allegations that the company violated the False Claims Act in connection with its participation in the Home Equity Conversion Mortgage (HECM) program.

“We’re happy to have that settled and now we can move one,” Tillett said.

The company is also positive on the recent changes to the HECM program, namely the Financial Assessment, which should provide for a “much better product,” said Denmar Dixon, Walter’s vice chairman of the board, executive vice president and chief investment officer.

“So they [FHA] have now implemented a process where you do some underwriting and you look at the borrower’s ability to pay,” Dixon said. “And to the extent that if they have it, you are good to move forward, but if they don’t, then there are some ways to reserve some of the availability in the loan to allow them to still qualify. It should provide for a much better product over time for the borrower and the servicer.”

Looking ahead, Walter plans to continue building out its distributed retail and consumer-direct channels in the reverse mortgage space, as well as make further investments in training and technology.

“We’ve had a decent amount of success getting that underway and we are optimistic about the market, the lack of penetration in the market, and our ability to grow those businesses over time,” Dixon said. “There is a good market opportunity, and if we focus on our investment in training and give our loan officers the technology to do their jobs, we’ll see better than organic growth in the businesses.”

Written by Jason Oliva

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