With relatively small volume overall and monthly numbers that have begun to slow in 2011, the HECM Saver hasn’t made too many waves. But market share for the Federal Housing Administration’s new HECM product has actually increased steadily since its release in October 2010.
Department of Housing and Urban Development data shows the share of HECMs versus standard reverse mortgages has risen from 2.55% in January to more than 7% in May (see chart).
Seven percent is still a far cry from the 20% HUD has set as a benchmark for offsetting costs of the HECM Standard product, but the loss of Wells Fargo could present an opportunity for MetLife, the second-largest originator of HECM Saver loans.
“In our retail channel we’ve been seeing HECM Saver account for anywhere between 15% to 20% of unit volume for applications coming in,” says Joe DeMarkey, assistant vice president of strategic business development for MetLife Bank.
In the first five months of 2011, MetLife and and Wells Fargo controlled 66% of the HECM Saver market, with 22% and 44% respectively.
With Wells Fargo’s recent decision to leave the industry, MetLife becomes the largest originator of HECM Saver loans, without much competition.
“It’s been tough for others to compete with Wells Fargo and MetLife pricing on ARM products,” says John Lunde, president of Reverse Market Insight, noting that almost all Savers are adjustable rate loans.
“I think the key question here is what MetLife wants to do with their ARM pricing in the absence of Wells Fargo—whether they want to dominate ARM in the HMBS market, or raise their pricing a little bit. If the latter, that would allow other HMBS issuers to become competitive with them on ARM.”
In recent months, Wells Fargo and MetLife have chosen to waive origination fees on ARMs, making it difficult for others to compete profitably.
“We offer the saver despite the fact that we don’t make much money on it,” says John Mitchell, founder of Reverse Mortgage USA. “And if that’s really the best product for the person’s needs, we will sell it to them.”
“It’s very hard for an institution that doesn’t have guaranteed access to liquidity (like a bank) to take on ARM products that are sold through HMBS structure,” says Lunde.
But for those in a more needs-based scenario, Mitchell says, the reality is that most people want to get the most money possible from a reverse mortgage, making the Saver less attractive.
For MetLife, the HECM Saver has reached a different type of borrower and supplements its “standard” business rather than competing with it.
“There are very distinct differences in our Saver borrower profile,” says DeMarkey, who notes that the approximate average maximum claim amount for the Saver is roughly 40% higher than what MetLife sees on the Standard side. “It’s starting to tell us that it feels like it’s a more sophisticated borrower, if you believe that property value is correlated.”
Further, DeMarkey notes, the vast majority of Saver volume is adjustable rate, which indicates that the borrowers need fewer proceeds upfront—another suggestion that the Saver borrower is using the reverse mortgage as a different kind of tool than the average Standard borrower. DeMarkey estimates that 80-90% of MetLife’s Saver business comprises ARMs.
While the industry can’t predict the impact of Wells Fargo’s exit and the loss of its 44% of the HECM Saver market, Metlife says it’s business as usual.
“We were probably one of the early adopters and we believe the HECM Saver provides that niche of the market—probably in our view the biggest growth opportunity in the industry.”
Written by Elizabeth Ecker