At the Right Price, Plenty of Reverse Mortgage Acquisition Opportunities

There is plenty of interest from outside investors in the potential of the reverse mortgage industry, panelists told attendees of the National Reverse Mortgage Lenders Association conference in San Antonio, Texas last week.

Fresh off the announcement by Walter Investment Management Company (NYSE: WAC) that it plans to acquire Reverse Mortgage Solutions for $120 million, there could be other deals on the horizon.

“I believe we will see new players make investments, based on what we saw when we took our company to the market,” said Marc Helm, president and chief executive officer of Reverse Mortgage Solutions. During the process, Helm said, he was encouraged by how familiar potential investors were with the product and overall space.

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New investors will be critical for the market to bounce back after the loss of Bank of America, Wells Fargo, and MetLife. Pete Engelken, president of Genworth Financial Home Equity Access said those who are acquiring portfolios or investing in Ginnie Mae securities may lead to additional investments in the industry.

“We’ve seen institutional investment; I don’t believe that this time around it won’t continue,” he said.

Nationstar (NYSE: NSM) has been active in the mortgage servicing business, including its recent acquisitions of Bank of America and MetLife’s reverse mortgage portfolios. While the company hasn’t made any investments in the origination side of the business, it could happen. During a call with analysts discussing Nationstar’s Q2 earnings, CEO Jay Bray said he sees it as a growth area for the company.

“I think that [reverse mortgages are] an area of growth. Clearly not close to what we can do on the forward side. And then longer-term, if you think about again the demographics of the country and politically how important that product could become over time, I think it is a strategic space for us to seriously consider to invest in.”

The deal between RMS and WAC has set a benchmark for the reverse mortgage industry, says Mike McCully, partner at New View Advisors, an investment banking and consulting company. While the transaction is positive for the industry, McCully worries that other companies might believe they’re worth a similar amount. RMS was unique because it’s a servicer, technology provider, has an REO platform, and is one of the largest HMBS issuers in the business.

“Sellers will likely believe their respective companies are worth more,” McCully said. “This dynamic could produce fewer transactions, not more.”

One of the biggest concerns for companies looking to acquire or make significant investments in the space is the decline in volume year over year. With origination volume expected to be in the 60,000 units range for 2012, the downward slope over the last few years is a concern.

“While everyone recognizes the overwhelming demographics that support long-term acceptance and growth of reverse mortgages, industry volume has been contracting since 2009. That’s a principal concern, as growth is the main cornerstone of investment,” McCully said. “At the right price, there are other transactions that could occur,” McCully said.