Reverse mortgage originators wonder: To merge or not?

Staring down the double-barreled regulatory changes facing them, smaller reverse mortgage originators are weighing their options for survival, among them merger with other companies.

“It could be devastating to brokers,” declares Owen Lee, co-owner, 1st Financial Reverse Mortgages, referring to elimination of the mini-Eagle program this month and the new Federal Reserve compensation guidelines, affecting loans originated after April 1 next year. Lee’s former company, Success Mortgage Partners in Plymouth, Mich., merged with 1st Financial earlier this year. “We felt our ability to get the HECM full-Eagle endorsement was greater with [1st Financial] as a partner,” he explains, adding that “it gave us more control over the [origination] process and provides us with a far superior business model, in light of new regulations.”

Michael Gruley of 1st Financial sees two, typical broker-related situations that suggest merger. “One is a mortgage broker-owner who no longer wishes to shoulder the financial and legal risks and management of a business, and wishes to focus more on the sales and production aspect of the industry.” The other, he says, “is a successful reverse mortgage originator who works for a mortgage brokerage firm and feels his or her future success may be limited by working for a broker, as apposed to a lender.”

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Merging also has its emotional aspect. “For my business, this step was always in the cards, so there wasn’t a feeling of loss, to the contrary, it was a feeling of long-awaited progress,” Gruley relates. “For those who never expected to make this type of change, they have to first get their heads around it.”

Mergers and acquisitions expert John Guzzo, managing director at BerkeryNoyes, in New York, says for an acquisition or merger to be successful, each side must “specify the qualities and features they are looking for in a company that would match the partnership requirements. It is also important to market a company the right way, so it is well positioned when competing for buyers or investors. And, the best way to make a firm attractive to buyers is by offering a healthy or attractive price,” he counsels.

Written by Neil Morse