As part of the global, $26 million settlement, Bank of American will pay $1 billion to resolve the wrongdoing during the investigation, including an immediate payment of $500 million toward recovery for harm done to the Federal Housing Administration by practices conducted by Countrywide. The remaining $500 million will be deferred to fund a loan modification program for Countrywide borrowers with underwater mortgages, according to FHA.

Any remainder of the $500 million designated for loan modifications will be returned to the federal government after three years, according to the agreement.

“We are committed to protecting the FHA’s ability to provide assistance to qualified low income and first-time home-buyers, and this settlement goes a long way toward that end. It also puts lenders on notice that they will face serious financial consequences for violating their obligations under the FHA’s programs,” stated United States Attorney Loretta Lynch.

The joint federal-state agreement is part of enforcement efforts by President Barack Obama’s Financial Fraud Enforcement Task Force.

Written by Elizabeth Ecker

While 2011 was about the loss of industry-defining reverse mortgage brands, the next 12 months will be about building the next generation of lenders.

For the first time in years, companies have a real opportunity to build the largest reverse mortgage lender in the nation. Prior to Wells and Bank of America’s exit, there was no realistic chance anyone could overtake either company in a year. But now, things are different.

Major brands like MetLife and Genworth remain, but less well known companies like One Reverse Mortgage, American Advisors Group, Urban Financial Group and Security One Lending have all picked up significant market share the last few months. Over the last few months, MetLife seems to have solidified its position as the #1 lender after the exits, will any of them be able to overthrow them?

How Things Will Play Out

While all of these companies race to pick up where Wells and BofA left off, they will be doing it as the Federal Housing Administration makes new changes to its reverse mortgage program.
I’ve said it once and I’ll say it again: 2012 is the year the HECM program grows up. An industry-wide financial assessment is coming, but exactly what it will look like isn’t clear.

MetLife struck first late last year when it released its guidelines, but others seem to waiting on Department of Housing and Urban Development to move first. Let’s be honest, the people at HUD have a difficult job ahead. How do they establish guidelines that don’t rule out a large percentage of the population the program was meant to serve?

Not follow in MetLife’s footsteps, according to some in the industry.

Most would like to see HUD take a common sense approach that looks at past credit history to determine whether a borrower must undergo a full financial underwrite. If there are an estimated 10% of HECM borrowers in default from failure to pay taxes and insurance, is it a reasonable thing to exclude 20-30% of borrowers from obtaining a reverse mortgage?

Some don’t think so.

Who Will Come Out on Top?

Looking at the endorsement reports from the last few months, it looks as though MetLife is ready to take the top spot once occupied by Wells Fargo according to the latest report from Reverse Fortunes.

But with its financial assessment, MetLife’s monthly volume is going to fall, despite what their regional managers may claim. As a result, looking at the top 10 lenders at the end of December 2011, it’s open season for a new No. 1

Let’s not forget about New York Life’s entrance into the reverse mortgage space, or J.G. Wentworth. Both are big companies that have publicly—or not so publicly—announced they’re entering the space. However, J.G. Wentworth has been pretty silent ever since we broke the news last year.

I wouldn’t bet on either being in the top 10 by the end of 2012, but you’d be crazy to rule them out.

For purists in the industry who believe reverse mortgages should be originated at the kitchen table, this could also be the year when a call center-driven lender becomes the No. 1 provider of reverse mortgages. Only a few years ago, most in the industry would’ve laughed at the thought it was possible.

But no matter what type of lender, the reality is, there has never been a better time for companies to solidify their positions as the next “Wells Fargo” of the reverse mortgage business.

As the old saying goes… “The King is Dead (Wells Fargo), Long Live the King”… who exactly will sit atop the throne at the end of 2012, we will have to wait and see.

The deal which is subject to purchase price adjustments and is expected to close on December 22, 2011, according to a Securities Exchange Commission filing. The transfer of the loans is expected to occur in stages beginning in the second quarter of 2012 and continue through the rest of the year.

The decision to sell the servicing rights comes after Bank of America announced it was exiting the business in February, it was the second largest reverse mortgage lender in the country.

Sources close to the transaction tell RMD that Celink, a subservicer based in Lansing, Mich., will handle the servicing for Nationstar. When RMD asked Celink to confirm, the company declined to comment.

Nationstar is a one of the nation’s largest mortgage servicers and is backed by Fortress Investment Group (NYSE:FIG).

Now, the company has confirmed it will attempt to sell the business channel, or it could face the chopping block.

“We intend to sell the correspondent-mortgage lending division or, if a suitable deal is not identified, we will consider other options,” including winding down the business, Dan Frahm, a company spokesman, told Bloomberg News in an e-mail. For now, those operations “continue business as usual,” Bloomberg reported.

It is yet another headline for the troubled bank, which announced it was leaving the reverse mortgage business in February, noting the exit decision was due to competing demands and priorities that demanded its resources be focused on other areas of the business.

As the bank giant continues to sell off pieces of its business, it looks more and more like the decision to quit offering reverse mortgages was more about the bank’s large-scale problems and less a statement about the reverse mortgage business itself. Upon its departure, Bank of America’s market share was near 10% on the retail side and 20% of wholesale.

The company acquired Countrywide Financial in 2008 in an effort to bolster its mortgage presence. The deal, however, left Bank of America strapped with problematic loans and mortgage lawsuits. Since then, Bank of America has also shed its mortgage wholesale business.

That business, Bloomberg reported, currently employs 1,400 people.

Written by Elizabeth Ecker

Reports have shown larger lenders saw a boost in volume following the exits, it also appears that some much smaller originators are beginning to see an uptick in business as well, and it’s largely due to new referrals they say otherwise would have gone to the big bank competition.

“In a weird way, I’m getting more referrals now from mortgage companies that don’t do reverses,” says Alain Valles, founder and president of Norwell, Mass.-based Direct Finance Corp. Valles said he has received more referral calls recently from mortgage companies that don’t do reverse mortgages, and estimates that roughly 20% of his reverse business comes from those kinds of calls.

Those referrals, he suspects, are increasing due to the large bank exits. Where non-reverse lenders might have referred potential customers to the big bank branches in the past, now they are going directly to smaller shops and the remaining, boots-on-the-ground players. That, or in the absence of those branches, borrowers are simply seeking smaller brokers for their loans.

“We are seeing more activity since the Wells Fargo/Bank of America departures,” Mike Gruly, 1st Financial Reverse Mortgages, told RMD in an email. “We think what is happening is that the banks used to receive many referrals from accountants, financial planners, investment advisors, housing specialist, Realtors, non-profit groups, etc. due to their brand recognition and geographic locations. Now that they are gone, these professionals are looking elsewhere to send their clients for reverse mortgages.”

Several other originators have told RMD the same: they are getting more referral calls, and from different kinds of people, from forward lenders to financial planners and accountants.

The numbers have yet to shake down when it comes to the volume lost by the large lender exits. While some recent data seemed to indicate that the industry had recovered losses following the Bank of America exit in February, a report from Reverse Market Insight noted factors that made the data look better than it initially appeared.

The jury is still out on how the Wells Fargo Exit will impact overall volume, but RMI has noted a trend showing that the Top-10 lenders have gained in the wake of those exits.  From MetLife and Urban Financial to American Advisors Group and Security One Lending, those Top-10 lenders are seeing a boost in overall volume.

But with more than a handful of even smaller originators telling RMD that their business is also benefiting, the new referrals that stem from those exits are also boosting the other end of the spectrum. The influx may have to do with the fact that Wells Fargo had the ability to draw referrals with its broad presence in the industry, one retail originator told RMD.

A promotion from Wells Fargo in February offered 2% of the max claim amount as a referral fee—no appraisal, processing or application needed. With Wells now gone from the industry, it’s unknown how successful such a campaign could have been. But one thing is clear: The referral business is flowing.

“Remaining reverse mortgage lenders with experience and good reputations seem to be getting these referrals now,” Gruley says.

Written by Elizabeth Ecker

Last year, volume was down 37% from its peak in 2008 and this year it’s expected to fall again according to John Lunde, president of Reverse Market Insight. What’s driving the downward trend?

The exits from Bank of America, Wells Fargo, and Financial Freedom, which together accounted for about 35% of the market, says Lunde.

“We’ve noticed a down trend since Bank of America stopped taking applications,” he told Reuters. Wells Fargo’s departure was announced in June, so it’s too difficult to say how it will impact the number of loans originated.

If the lenders hadn’t exited the business, volume would’ve likely grown during 2011 says Lunde.

“The industry was on pace to grow before the exits. This year’s decline will be all about these companies leaving the market.”

The fact that two well-known institutions have bowed out of the industry could have significant repercussions on reverse mortgage numbers, says Prescott Cole, the senior staff attorney for California Advocates for Nursing Home Reform.

“I think that it’s really going to set the reverse mortgage industry back, losing these giants, because the perception of stability and value and honesty and trustworthiness that these banks have spent hundreds of millions of dollars on over the years, trying to instill confidence in the community, is lost,” says Cole.

Wells Fargo, which commandeered 26.2% of the reverse market at the time it left the industry last month, officially attributed its exit to the inability to assess seniors’ ability to maintain the tax and insurance requirements of reverse mortgage loans. Bank of America, which was the second-largest reverse lender behind Wells Fargo, finished out 2010 with 17.8% of the reverse market share before bowing out of the business in February of 2011, saying it closed the operation to “focus on its core mortgage business.”

As for how Wells Fargo’s departure shapes consumers’ attitudes toward the reverse product, Norma Garcia, a senior attorney for Consumers Union says her best guess is that it creates uncertainty about the ability of lenders to meet the needs of borrowers.  She also wonders whether the launch of the Consumer Financial Protection Bureau as a reason for leaving the market.

Cole questions whether consumers perceive reverse mortgages as a product that’s here to stay, and Wells Fargo and Bank of America leaving the industry doesn’t do much to solidify that viewpoint, he says.  ”The industry is going to be left struggling to regain the acceptance or perception that this is a mainstream product. If it’s such a mainstream product, why did the ‘big guys’ get out of it?” Cole asks.

However, he continues, there’s always going to be a demand for reverse mortgages, especially for seniors who may be cash-strapped but equity-rich.

“I don’t think the reverse mortgage market is going to collapse, it’s just going to be a different kind of growth,” says Cole, adding that the number of those who may have considered a reverse mortgage for quality-of-life enhancement will probably decrease significantly. “I think, really, for the smaller groups that were involved, they’ll do well. They’ll do better, because the people who needed a reverse mortgage will probably go down to one of these smaller institutions. But the growth overall, I think it’s going to slow down a lot.”

Barbara Stucki, Vice President of Home Equity Initiatives, agrees that reverse mortgages will continue to be an option, but consumers’ attitudes toward the product’s role in their retirement planning may change.

“There’s still some key players in the business; by having the big banks leave, the folks who are left are more likely to be specialists,” says Stucki. “MetLife [Bank] and Genworth [Financial Home Equity Access] are organizations or companies that tend to focus on the retirement security side of things. This may sort of shift the conversation to looking at this more not so much as a home loan but as retirement financing, and I think that is the way to go. The nature of the conversation may change somewhat, more than necessarily people’s willingness or ability to take out a reverse mortgage.”

Regardless of whether consumers view the product as a home loan or part of retirement financing, the fact remains that for seniors who need cash and have nowhere else to turn, a reverse mortgage may be their best bet.

“There are a lot of people entering retirement who haven’t saved for retirement, but have equity,” says Tony Webb, a senior economist on Boston College’s research staff. “A reverse mortgage is obviously an option; the question is whether households will actually make use of that product.”

Written by Alyssa Gerace

The government sponsored enterprise issued a Real Estate Mortgage Investment Conduit (REMIC) consisting of $9,255,811,613 HECM loans originated by Bank of America. A REMIC is a type of multiclass mortgage-related security in which interest and principal payments from mortgages are structured into separately traded securities.

The underlying REMIC securities are secured by reverse mortgages that are insured by the Federal Housing Administration.  The pool of loans consists of adjustable rate one-month LIBOR and CMT loans, with approximately 9.89% and 7.59% of the Group I Loans and Group II Loans in default, but not yet declared due and payable according to the prospectus.

As of Q1 2011, Fannie Mae had a $50.9 billion portfolio of reverse mortgages. The GSE’s involvement in the business has tapered off as reverse mortgage lenders started issuing securities through Ginnie Mae’s HMBS program.

Bank of America announced it was leaving the reverse mortgage business in February as part of a strategic decision to focus on other key areas of its business.

The REMIC composed of reverse mortgages is a first for Fannie Mae, but not the first REMIC in the industry.  Last year, Ginnie Mae issued the first reverse mortgage REMIC composed of $130.9 million of Bank of America reverse mortgages.

Fannie Mae said it expected to issue the certificates on May 27, 2011.

“Fannie Mae does not currently plan to sell the securities it issues, but rather plans to hold the securities in its portfolio for the foreseeable future,” said Pete Bakel, Financial Communications, at FNMA in an email to RMD.  ”In turn, it is not anticipated that this securitization will have any impact on the overall reverse mortgage market.”

Editors Note: A previous version of this article said that FNMA unloaded the loans, which was incorrect.  The loans are being securitized.