Two of the biggest shocks to the reverse mortgage industry this year came in the form of major lender exits from the business. But the aftermath from those exits is proving to look quite different, with one appearing to have more potential to drag down volume than the other.
Wells Fargo and Bank of America held a combined stronghold over the reverse mortgage business in recent years. While to many, Bank of America’s exit in February seems to have come and gone with little volume lost, an industry analyst explains why Bank of America’s exit looks like it has carved a deeper hole in the industry than giant Wells Fargo will.
One difference was the way in which the banks went about wrapping up their business. Bank of America cut off applications promptly, while Wells Fargo allowed several weeks to continue taking applications and closing loans.
“We had three months of application volumes [after Bank of America’s exit] to look at before Wells Fargo ‘re-muddied’ the waters,” says John Lunde, president and co-founder of Reverse Market Insight.
From February over the next three months, the industry lost 16.3% of applications per business day, Lunde says. Bank of America was 17.6% of volume before their announcement, which suggests 90% of the bank’s volume was lost from an applications perspective, he says. RMI tracks applications per business day to account for shorter and longer months. The applications per business day following each bank’s exit were very similar. The fallout looks slightly different, however.
Following the Wells Fargo exit, to date, only 54% of the bank’s volume has been lost, which indicates volume is declining more slowly following the Wells Fargo exit than in the case of Bank of America leaving.
The reasons behind the difference remain unknown, but there are other considerations when it comes to the banks leaving their mark on the industry.
“It’s difficult to say what percentage of borrowers were introduced to the HECM by Bank of America,” says Joe Hansler, national reverse mortgage manager for First National Bank of Layton, and formerly of Bank of America. “Many borrowers that had already considered a reverse mortgage would contact Bank of America as a trusted advisor.”
The originators at Bank of America, he says, grew their business organically and likely took it elsewhere following the exit, as Hansler has.
“Many of them found homes with other lenders, so I think you’re seeing a lot of what would have been Bank of America volume spread out among those lenders.”
Wells Fargo, however, had a different model, with its huge retail business and widespread branch presence.
“It’s hard to predict what type of impact their exit will have on industry volume,” Hansler says. “While many of their originators have found homes with other reverse mortgage lenders, it’s unlikely that those originators will see a similar level of referrals from their former retail bank and forward mortgage sources, and therefore the impact could be greater.”
There’s no short answer, but at least thus far, RMI is seeing the impact following Bank of America’s exit runs much deeper.
“So far we’ve seen less decline relative to market share [for Wells Fargo],” Lunde says. But those numbers are contrary what is believed in the industry.
“I think Wells Fargo’s exit will have a larger impact on industry volume than Bank of America’s due to their size and model, but how much only time will tell,” Hansler says.
Written by Elizabeth Ecker