Forward or Reverse? Some Lenders Say Both is Best

While it was once believed the lenders who specialize in reverse mortgages find the most success, some mid-sized lenders are proving that operating on both the reverse and forward sides is a viable—and even preferable—model.

Costly regulation and ongoing changes taking place in the reverse mortgage industry have prompted at least one top-20 lender to make a recent advance into the world of forward lending. And others are maintaing their businesses on both sides as well.

San Diego-based Security One Lending, a top-10 lender in 2010 and former reverse-only operation, has its sights on expansion into the forward market and sees itself as poised for substantial growth in that business.

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“On the reverse side, one thing that has hampered ability to grow is [home] values,” says Torrey Larsen, president and CEO of Security One. “On the flip side, on the forward side, that presents a tremendous opportunity.”

Larsen says the company began originating forward loans at a very modest pace in 2010, and expects its forward volume to surpass its reverse mortgage volume later this year. By the end of 2012, he says, he expects the forward business to outpace the reverse side by a factor of three.

Why such great expectations? The timing of the shift is essential.

“A majority of privately held mortgage originators are not arond anymore. When I look at market share and market share growth opportunities, outside of big banks, there’s no dominant player,” Larsen says.

Alternately, some lenders have found success in building the forward business and then introducing reverse mortgage products.

“When the business got really bad on the forward side, we got into reverse,” says Josh Shein, CEO of 1st Maryland Mortgage Corp., of a shift that brought his company from a forward-only operation launched in 2001 to a business that now counts the majority of its business in reverse loans.

The forward business has presented a timely opportunity to diversify, Larsen says. “Even though reverse is what we built our company and brand on, volume dropped significantly in 2009 and 2010,” he says. “How do we protect ourselves if that trend continues?” With HECM endorsement volume dropping from nearly 115,000 in FY 2008 to less than 80,000 last year, Larsen points to additional unknowns such as FHA changes that could further inhibit industry growth.

Another plus for the transition is the fact that systems are in place that can work for both sides of the business. While the sales teams will remain entirely separate, some back office functions such as loan documents, shipping, funding and insuring will share resources for Security One Lending and its forward brand, Synergy One Lending.

Security One’s forward business arm will focus on the West Coast initially, with plans to expand into Nevada and Arizona, where property values have taken some of the hardest hits. “It presents a great time for an individual to buy property there,” Larsen says.

Shein says he has seen more fallout and potential problems on the forward side, but while the two-sided business is not without its challenges, it allows growth where growth is opportune. A separation of the two products in terms of a sales team and other back office processes is also important, he says.

“Logically, they should go hand in hand, but there are many differences,” Shein says. “They should be separate and different.”

Written by Elizabeth Ecker

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  • I have set myself up as a foreclosure specialist that can offer a variety of financing for homeowners looking to keep their property out of foreclosure or buyers looking to purchase foreclosures. Until this year I only marketed to senior homeowners facing foreclosure. With property values continuing to decline my pull through rate for reverse mortgages refinances was only 20% due to low appraisals. Currently I am also marketing to homeowners looking to finance foreclosure purchases with forward or reverse financing. My pull through on the foreclosure purchases has been 70%. By staying in the foreclosure niche and offering purchase and reverse foreclosure financing my marketing cost have decreased because my pull through is better. I believe if we are going to survive as brokers we need to find a niche.

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