Wells Fargo Reverse Exit Could Present a Land of Opportunity for Other Lenders

The decision by Wells Fargo to close down its retail reverse mortgage business shocked the industry and continues to send a ripple effect to smaller banks, other lenders and brokers whose businesses are positioned to change—and benefit—as a result.

With many questions lingering from the composition and impact of a financial assessment from HUD that aims to address the question of borrowers’ ability to make tax and insurance payments, to the departure of Wells Fargo’s brand presence and branch model, many lenders say while they’d prefer to have Wells Fargo in the business, the exit presents an opportunity for growth and expansion.

“For us, it’s a real opportunity,” says Richard Mandell, vice president of mortgage banking for One Reverse Mortgage, which has for some time been the fourth-largest lender behind MetLife Bank, Bank of America and Wells Fargo, and is now poised to become No. 2. “We’re running a business that’s very efficient and in a position to grow quickly. Our plan is to continue helping make a difference in seniors’ lives. There are a lot of people entering the age group for reverse mortgages and we are excited about the future of our company.”

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Some industry players are already ramping up efforts in response to Wells Fargo’s exit, and others say their expansion plans are are aptly timed to benefit from the void in market share.

“On the retail side of our business, we’ve increased our advertizing and staffing to help seniors who would otherwise have purchased a reverse mortgage from Wells Fargo or BofA,” says Pete Engelken, president of Genworth Financial Home Equity Access, Inc. “For our wholesale partners, we have introduced additional ‘community-oriented’ marketing materials and expanded the availability of our On-line Leads Program.”

First National Bank of Layton, Utah recently announced it had hired a national reverse mortgage manager with strong plans to grow nationally. The timing now seems very opportune for the bank.

“While this is not good news for the industry, First National Bank is in growth mode and is uniquely positioned to provide a home for Wells Fargo’s originators immediately and capture significant market share in all 50 states,” says Joe Hansler, national manager for reverse mortgage lending at the bank. First National’s structure and capacity as a bank that will not require new originators to go through the licensing process puts it in an opportune position, says Hansler.

“We feel the timing couldn’t be better to strengthen our support and our place as an industry leader,” he says.

Many industry players note the void Wells Fargo will leave as it has continually provided a recognizable brand presence for reverse mortgage products.

“It’s always sad to see an industry leader pioneer leave the space, especially someone of Wells Fargo’s stature and size,” says Reza Jahangiri, CEO of American Advisors Group. “But we think in the long run the product has a positive outlook and we see it as a longer term opportunity.”

GFHEA’s Engleken also believes the departure will create new growth opportunities for historically smaller players in the reverse mortgage market.

“GFHEA has robust retail and wholesale channels, but we have rarely overlapped with Wells business which was mostly generated through their branches. We, and other industry participants, will reach out to help the consumers who no longer have Wells as an option,” he says.

Another outcome of the exit has been a signal to lenders that the industry must come together in response to Wells Fargo’s challenge in assessing borrowers’ ability to meet the obligations associated with reverse mortgage loans, which the bank cited as an important reason for its decision.

“Wells Fargo’s exit sends a resounding message to HUD that the industry needs guidance around financial assessment if the HECM is to remain viable, and I think we as an industry need to unite around that to avoid the loss of another major reverse mortgage lender,” Hansler says.

HUD has said it is working on the development of a financial assessment that will consider HECM borrowers’ ability to keep up with their obligations with respect to the loans.

“We do thnk it’s important to address the T&I issues, and we need to work diligently with HUD so it will not limit seniors,” says Jahangiri. “For the people that are high-risk, we want to make sure we have a protection mechanism there for them. We think it’s important to be addressed for the long term.”

Engelken notes that counseling and education is still going to be essential, as it always has been.

“Significant safeguards exist in the reverse mortgage origination process including mandatory HUD counseling to ensure that seniors understand the reverse mortgage process, the features of the product and their contractual requirements including making tax and insurance payments,” says Engelken.

Upon Wells Fargo’s exit on the heels of Bank of America’s decision to exit the business in February, smaller lenders are positioned to assume the top industry spots. Mainstream media coverage in the days following the Wells Fargo announcement pegged MetLife, historically the No. 3 lender in terms of volume, to assume the top spot.

MetLife Bank declined to comment for this article.

Written by Elizabeth Ecker

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  • The Industry has battled a negative reputation for decades due to relatively few loans that were originated in the early years of the program. How much damage and how long will it take to recover from the negative press when these T&I defaults come home to roost and seniors are foreclosed in  possibly great numbers? Sticking our heads in the sand and saying this is a great opportunity is naive. Why would a large institution close at a loss, a division that is profitable? If there really was great opportunity and a bright future, wouldn’t they sell the division for 100’s of millions of dollars? It’s happened twice in a very short period of time. No comment from MetLife… Are they next? 

    • GBenjamin,
       
      While I agree that it is odd not to see an attempted sale of the reverse mortgage operations, it has precedence.  These operations were very minor at their respective banks.  There is history of much larger operations being shut down at huge losses over nothing more than internal company squabbles and politics.
       
      Any reassurance at the level of Mr. Craig Corn or below will rightfully be questioned.  To achieve any real assurance would need the statements of the Chairman or the CEO of MetLife itself.  To believe any Forbes 100 entity would provide such reassurance for such a minor operation is not reasonable; it makes those companies look too weak.
       
      The reverse mortgage operations of Wells Fargo, Bank of America, and MetLife might be huge in our eyes but they rarely gained the attention of senior management at their respective companies except when their operations might somehow be detrimental to the operations of the rest of the company or aspects of their growth needed specific senior management approval.
       
      Quite happily MetLife has chosen not to make any public comment (as has HUD).  We look at the reverse mortgage operations of these three industry giants as one thing but their owners only look at them when there is trouble, a very specific need requiring approval by senior management, or if they are major contributors to company bottom line profits (which we all know has never happened).  We focus on them far more than do their respective company senior managements. 
       
      Senior managements at Forbes 500 entities look out for the good of themselves, their respective boards, their shareholders, and their other stakeholders long before they look at the impact of their decisions on a dinky industry like ours.  Quite frankly other than being polite and not wanting to show their hubris, they really don’t care.  They care far more about their reputations and their consumer customers.  As evidence just look how quickly Wells opened and closed its wholesale operations.

  • Many people I have spoken with assume that those still standing are going to pick up the Wells volume by default. Most of it is going to be picked up by the companies that attract the top performers at Wells.
    I believe some will simply disappear and the rest will be picked up by those who really work for it.

    • treverse,

      You are in good company. 

      John Lunde strongly agrees with you but that does not mean there will not be growth to those companies which get the best of the best of their originators.  However, it is doubtful if without the branch referral systems and strong bank images which they so heavily relied upon they will quickly be able to perform at the same levels they did while at Wells or B of A.

      Industry endorsements suffered this year to some degree from the loss of B of A for a small part of the fiscal year but will suffer much more next with the loss of both.

  • SaveTheHECM,

    It could be over some very petty issues as well.  Only senior management really knows. 

    For example, is the Dodgers franchise in trouble because of massive mismanagement or divorce?

    Whatever the real reasons, Wells has found graceful reasons for bowing out.  That is probably the most we or its employees will ever know about the decision.

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