An affiliate of Seattle Bank, the operation was hampered by the bank as it struggled to raise additional capital to appease federal regulators.  Reports show it’s close to raising $50 million to re-captialize the bank and as part of the process, the company decided reverse mortgages were not a core business.

“The bank has reviewed all active programs upon recapitalization of the organization.  As part of that process we chose to retain those we feel are core to our business objectives overall while exiting others not meeting those needs,” said Patrick F. Patrick, CEO of Seattle Bank in an email to RMD.  ”We enjoyed being involved with the Reverse Mortgage business over the years and especially the relationships developed as part of the process.”

Last March, the company hired Sarah Hulbert back to re-build its reverse mortgage business after it was sold to Bank of America in 2007.  Hulbert brought group of employees with her and told RMD she hopes to find the team a new home as part of a different lender.  ”I am pleased to say there are several organizations who have expressed interest,” she said.

Seattle endorsed 54 HECM loans in 2010 according to HUD data.  For more information, check out its listing on ReverseBase.

Bank of America acquired Seattle Mortgage’s reverse mortgage division in 2007 which included a portfolio of over $4 billion reverse mortgages, approximately 400 SMC employees as well as a retail sales force of more than 200 associates in 25 states.  Terms of the deal were not disclosed until now…

Business Journal is reporting that court documents show Bank of America paid $220 million for Seattle Mortgage.

The information comes after three former employees of Seattle Financial Group are suing to recover $5.5 million they lost in 2009 after their employment was terminated.  The former employes are seeking up to $3.6 million apiece that they expected to receive from a company investment, called the Phantom Stock Plan.

According to the documents filed Friday, the issue relates to actions in 2006 involving the plan. The board voted to redeem the shares of two of its own members after Seattle Bank sold its reverse mortgage unit to Bank of America for $220 million, the Friday suit alleges. In addition to the companies, the suit names Benjamin Smith, his son-in-law and Seattle Financial CEO Robert Story Jr., David Smith and Robert Smith, Sr. Seattle Financial Group is a family-owned business owned by the Smith family.

Seattle Financial Group board members were compensated $74 million, using money from the BofA sale, for their 52 percent stake in the stock plan. Other board members, including Seattle Financial’s CEO, received $6 million in dividends from their shares. According to Friday’s complaint, the fine print in the plan said the entire investment plan should have been terminated at that time and all investors paid because such a large redemption had been made.

Seattle Financial sued by old employees

According to court documents, the plaintiff, Mary Labrador alleges that Seattle Mortgage was illegally paying fees to its mortgage brokers and overcharging borrowers on the cost of loan origination.

When Ms. Labrador took out her reverse mortgage through Home Center, a correspondent fee of $490 was paid by Seattle Mortgage to the mortgage broker and alleges it was a “back-channel fee arrangement” used to induce mortgage brokers to steer mortgages to the company.

Court documents reveal that while Ms. Labrador was told the $490 fee was paid to Home Center for the servicing rights to the loan, but she contends that the fee was in fact an incentive fee designed to motivate brokers to steer mortgagors to Seattle Mortgage.

This fee, according to the plaintiff, created a “financial interest” and therefore should have prohibited Defendant from charging Plaintiff the “origination fee” of $7,255.80 due to federal regulation 24 C.F.R. § 206.31(a)(1).  The regulation states in part, that a mortgage broker’s fee may be included in the origination fee charged to the borrower only “if there is no financial interest between the mortgage broker and the mortgagee.”

Nance Becker, the lead attorney representing the plaintiff told Business Journal the lawsuit is intended to be a class action and claims reimbursement costs and damage which would likely total about $56 million,

“The bank cannot pay any portion of the origination fee to the broker when there’s a financial interest between the bank and mortgage broker,” she said.  “I believe the intent of the regulation is that we want mortgage brokers to give people financial advice based on what’s in their financial best interest and place them in loan products best suited for their needs,” said Becker, “not to be influenced by the fees they receive from the banks.”

If the ruling is favorable to the plaintiffs, it could mean that “common” lender-broker relationships are in fact, in violation of HUD rules, and subject to legal action.  Further, the suit is focused in California. Other states could discover the same practice exists there as well.

“It could affect other institutions,” said Becker. “The regulation applies nationally.”

RMD contacted Seattle Mortgage and was told the company couldn’t comment at this time.

Seattle Bank unit faces California class-action suit

Recently I spoke briefly with Terry Francisco, Bank of America’s SVP of corporate communications who said that Steve Boland was recently named reverse mortgage executive at Bank of America.  Boland spent 11 years with Countrywide and was managing director and CEO of Countrywide’s reverse mortgage division.  The two companies will continue to operate as separate companies but full integration of their sales forces and servicing centers is expected in mid-2009.

Bank of America’s entrance into the reverse mortgage business is a great example of how large institutions can buy market share very quickly.  Before buying Seattle Mortgage in June of 2007 the company had a relatively small footprint in the reverse mortgage business.

Technorati tags: Reverse Mortgage, HECM, Bank of America, Countrywide, News

Another interesting note from the article:

Mr. Peskin, who said he had been approached by several other institutions, said he liked KBCFP’s offer best because it meshed with his entrepreneurial approach to business and the KBC Bank subsidiary seemed willing to provide the resources needed to make strategic moves quickly and efficiently. 

This is a good fit for a company like Vertical Lend, who has been willing to test brand names and innovative strategies in the market and make shifts toward new areas if they don’t stand the test of time.  Earlier in the company’s history, Vertical Lend experimented with accountant-originated loans but the company found the reverse mortgage market has become the strongest opportunity. 

Vertical Lend is the third company this year that has been bought by a larger institution looking to establish itself in the reverse mortgage market.  Earlier this year  Bank of America purchased Seattle Mortgage, which instantly made BofA one of the largest reverse mortgage originators in the country.  At the end of July we also saw Genworth Financial purchase Liberty Reverse Mortgage, which Genworth is hoping will compliment its long term care business.  It seems like this is becoming a trend that we will be seeing more and more.

Technorati tags: Reverse Mortgage, Reverse Mortgage News, HECM, Lender Lead Solutions, Vertical Lend, Bank of America, Seattle Mortgage, Genworth

There has been no word if Bank of America is planning on using the Reverse Mortgage of America brand that Seattle Mortgage has built over the past few years, but they are integrating the former staff with the BofA team.  The former VP and COO of Reverse Mortgage of America, John Nixon will be Bank of America’s reverse mortgage origination executive.  “Our sales and service teams are excited about joining Bank of America, the nation’s premier consumer financial services organization,” Nixon said. “We now have the distribution and delivery power to reach more seniors who are actively seeking innovative financial solutions to meet their retirement needs. We also expect to expand our commitment to the wholesale channels by providing them with even more innovative products in the coming year.” 

I wasn’t able to find out any information on how BofA was planning to integrate Seattle Mortgage’s wholesale business line.  One of the drawbacks for signing up with Seattle’s wholesale division was their application fee which was fairly large.  If BofA would eliminate this fee I’m sure that you would help to generate more business for the wholesale division.  If this happens, Financial Freedom is the only other wholesale lender that charges a substantial application fee that I am aware of.  I would also think that BofA would keep the wholesale business separate from BofA’s forward wholesale operation like Countrywide has done.  Later on this week I will post some details on BofA’s proprietary product, the Senior Equity Maximizer.  To read a full copy of the press release click the link below.

Bank of America Completes Acquisition of Reverse Mortgage Business of Seattle Mortgage Company (PR Newswire)

BNY Mortgage has also said that they will allow reverse mortgages on second homes under certain guidelines.  Sarah Hulbert, executive director of BNY Mortgage’s western regional center, said they would allow its Prime Advantage™ product on a second home as long as the owner didn’t already have a Prime Advantage™ loan on their primary residence.

Back in April, Sun West Mortgage Company Inc. released their Cash Keeper™ which was the first product to allow the borrower to get a reverse mortgage on their second home.  It’s good to see other lenders starting to adapt to the changing marketplace of reverse mortgage borrowers and I’m sure we will see others doing the same very soon.  To read a full copy of the article from HeraldNet click the link below.

Reverse mortgages are rising in stature (HeraldNet)

Technorati tags: Reverse Mortgage, Reverse Mortgage News, HECM, FHA, Second Homes, Jumbo Reverse Mortgage

Bank of America

BOA has been piloting their own reverse mortgage products with customers in Arizona since November of this year.  According to David Rupp, BOA Home Equity Executive who will oversee the integrated operation, “We will leverage Seattle Mortgage’s industry expertise with Bank of America’s leading distribution channels to achieve market leadership in this growing area of the financial services marketplace.”  Along with a reverse mortgage portfolio of over $4 billion in outstanding balances, approximately 400 SMC employees will join BOA as well as a retail sales force of more than 200 sales associates in 25 states. 

There was no word on any of the financial details of the transaction and according to the press release the deal is expected to close in the second quarter of 2007, pending regulatory approval.

To read a copy of the press release click the link below

Bank of America to Acquire Reverse Mortgage Business of Seattle Mortgage Company

Technorati tags: Reverse Mortgage, Bank of America, HECM, Senior Finance