Reverse Mortgage Bank Exits: Which One Cuts Deepest?

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.

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“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

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  • Some questions are best answered after some time has passed.  Some questions are difficult if not impossible to answer because of lack of data.  It seems the questions raised in this article fall into both categories.

    To be clear the answers would help with forecasting industry endorsements for next year.   So the answers are not irrelevant; they are, however, difficult to answer or quantify.

    • Agree on both points.  Still early, and too little data to be certain about anything.  One important question in this analysis is how long it takes originators to start producing at their new companies?

      That’s probably the biggest missing piece in this analysis that should be knowable.  At the end of the day the question is how many loan officers left the industry following these exits (rather than move to another company) and how did the productivity change for those remaining?

      • John,

        Agreed.  You are exactly on point; these are the crucial issues and questions of importance.

        The question of which exit hurt the industry the most will probably be cocktail fodder at NRMLA and MBA conventions for years to come with no clear “winner” just an interesting time “debating” THE reverse mortgage question of the decade.

  • And some have simply decided to hang it up- regulations have made it so difficult that more time is involved making sure you haven’t crossed the line or forgot to include your wacky states “piling on” policy.  THIS is where our leaders have failed (if you need examples).  Most of these regulations are a case of closing the barn door after all the cows have left.  You aren’t going to get rid of all the bad eggs no matter what you drag us through but the Seniors are starting to grumble at all the things we have to put them through and explain to them.  Once the kids hear this it muddies things up even more.

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