Reverse Mortgage Lenders Look to Capitalize on Bank of America Exit

As the shock of Bank of America’s decision to leave the reverse mortgage industry wears off, a talent and market-share grab is underway.

At the end of 2010, Bank of America’s market share stood at 17.8%, making it the second-largest reverse mortgage lender in the country. Interestingly enough, over the last two months, endorsements for the bank have been at the highest level since February 2010 according to data from Reverse Market Insight. But with the bank expected to close things down by the end of April, lenders are already working to take advantage of its exit.

“We’re disappointed to see BofA leave the space from an industry perspective, but we fully intend to capitalize on any opportunities in the reverse mortgage market,” said Eric DeClercq, national retail leader at MetLife Bank during an interview with RMD. “Current market conditions are favorable for us in the retail space.”

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As the third largest reverse mortgage lender, behind Wells Fargo and Bank of America, it’s actively looking to go after opportunities through retail, correspondent and wholesale. “We’re in growth mode on all fronts,” said DeClerq.

With 600 employees in Bank of America’s former reverse mortgage division, lenders realize there is a group of talented professionals who may decide to leave the bank instead of joining the new division. Smaller companies like San Diego, Calif.-based Security One Lending are heavily recruiting former BofA employees.

“This is a huge opportunity on the origination side for a company like us,” said Torrey Larsen, CEO of Security One Lending (S1L). “We were confident our retail business would continue to grow this year, but the Bank of America exit is an incredible opportunity.”

Larsen realizes his company can’t absorb all the BofA employees, so S1L is being highly selective about who it’s looking to bring on. “We have to be cautious and balance the opportunity since we only have so much capacity,” he said.

Last week, the company announced it has hired Ron Fetcher to lead the expansion of its retail lending team.

Competing for talent with large national brands like MetLife and Wells Fargo is a challenge for mortgage bankers like S1L, but not being associated with a large national brand also has its advantages according to Larsen. Unlike large banks, S1L doesn’t have the ability to just close up overnight like BofA. “We’re in this for the long haul,” he said, “everyone has a false sense of security going to a big brand. Why would you want to recreate the risk profile if you don’t have to?”

Other companies like Urban Financial see more of an opportunity from the wholesale side of the business to pick up market share.

“After the [BofA] announcement, a huge influx of new brokers and correspondents started contacting us,” said Bryan Hendershot, CEO of Urban Financial. The company runs its wholesale channel through ReverseIt, which has 16.6% of the total wholesale marketplace. When asked how much business the company could pick up from the bank’s exit, Hendershot said it’s hard to tell.

“There is so much going on with upcoming regulations and we don’t know the true impact of the rules on brokers yet,” he said.

While most are looking to pick up where Bank of America left off, analysts expect there to be some fallout.

“It’s too early to really know how BofA’s exit will affect industry volume, but we do expect it to have a negative effect if all else were equal,” said John Lunde, president of Reverse Market Insight.  Overall industry volume could suffer from the loss of “BofA customer relationships and/or BofA’s branded marketing that provides a halo effect to the industry overall.”

“We might lose less than half the retail volume from BofA from an industry perspective as their clients go to another institution for their reverse mortgage needs, but thankfully we have other very respected financial brands enhancing the reverse mortgage brand for everyone still here,” he said.

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  • It is hard to believe that HECM applications will rise significantly during the next two plus months with so much turmoil and transition. We have had NMLS licensing deadlines, major and minor lenders discontinuing operations, and now we face a new compensation rule. What disruption in an already weak origination year. It is still hard to believe leaders were promoting the idea of 100,000 endorsements for this fiscal year as late as mid November; now with all this, it is doubtful if even one would proclaim to a room full of originators that we will yet see that level of activity.

    B of A people who are coming to places like Security One Lending are finding that they will not be exempt from licensing which many will not find a simple chore. Here in California the 20 hour national education is waived for real estate licensees. It is very doubtful if many B of A people hold real estate licenses.

    Although it is not being talked about the NMLS exams are not the easiest to pass even for those with forward mortgage experience. Many originators with little or no forward experience have had great difficulty passing it on their first try. For those now looking to take it, it could take two months or longer to pass the exam if they fail it the first time; there is a required 30 day waiting period between attempts. After three failures, one must wait six months to retake this exam. Those of us who are older were somewhat intimidated by the failure rates of younger but very experienced originators. A word to the wise….

    While it is ever more likely that HECM endorsements will be lower for this fiscal year than last, it is not the total number which is of greatest concern. It is the composition of that number which is troubling. If the total is up but the number of Standards is significantly lower than 78,757 (the total from last fiscal year), this would show a continuing deterioration in demand in the most historically significant segment of the HECM market despite over 13,000,000 Baby Boomers turning 62 through September 30, 2011 (based on a rough but inaccurate estimate of 10,000 Baby Boomers turning 62 per day beginning on January 1, 2008).

    It is the application numbers this summer and fall which will determine the outlook for the following fiscal year ending September 30, 2012. Hopefully we will see a vast increase in Standard originations during those very critical six months due to less turmoil and other business disruptions.

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