MetLife Sticks With Reverse Mortgages

The decision by MetLife to sell its forward mortgage operations came as a surprise to the reverse mortgage world as many wondered following the exits of Bank of America and Wells Fargo from the business, whether MetLife would be the next shoe to drop.

Not, so, say analysts following the decision announced Thursday, that MetLife would put its forward home mortgage loan business up for sale.

The decision came several months after MetLife said it was seeking a buyer for its bank, a move which it pursued due to increased regulation, it said at the time.

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Upon the announcement regarding its “forward” mortgage business, the global insurance company said it would continue its reverse operations. While it didn’t specify as to the operational differences between the forward and reverse business channels, its statement expressed commitment to the business of which it now occupies the No. 1 spot. Analysts agree that MetLife is positioned to continue to gain from its reverse mortgage operations while the forward side of the business makes less sense for an insurance company.

“MetLife thinks that reverse mortgages are going to be an important instrument with regard to income distribution,” says Steven Schwartz, an analyst for Raymond James & Associates who follows MetLife. “That is an area that MetLife and many, many life insurers are targeting and see a big opportunity in helping people see that retirement funds they’ve built will last a lifetime.”

The reverse mortgage business and its alignment with MetLife’s broader insurance products is what makes MetLife different from the other reverse mortgage lenders that exited the business this year, with product mix being an essential component.

“The common thread between B of A, Financial Freedom, Wells Fargo, and now the Metlife announcement is that each is choosing to pare back ‘ancillary’ lines of business in favor of focusing on their core opportunities,” says John Lunde, co-founder and president of Reverse Market Insight. “For the first three, that meant banks keeping forward and getting out of reverse. Metlife, as an insurance company, is getting rid of its bank and forward while keeping reverse.”

For now, that means sticking with reverse mortgage products.

“I view that as validation of a viewpoint many of us have made over the years: reverse mortgages are less like forward mortgages than they are like life insurance,” Lunde says. “At least so far, Metlife seems to agree with that sentiment.”

It is an area where MetLift wants to continue doing business, Schwartz says. “Lifetime income is an area where the life insurance industry is very well suited.”

Written by Elizabeth Ecker

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  • All the concern about MetLife staying in the industry is a sign of the times.  There have been some real surprises from MetLife Bank recently.
     
    Mr. Lunde made the quotation above about life insurance in a thread of comments late this morning in the RMD article from yesterday about the MetLife decision to get rid of its forward mortgage operations.  It is understandable how those who come from the life insurance industry might find similarities in HECMs but not proprietary products. 
     
    The differences between life insurance and HECMs are enormous.  A HECM is a mortgage, not an asset.  The actuarial structural and tenure payout structures are much different.  A HECM provides current cash.  A HECM cannot be sold by the borrower.  Life insurance is not the only asset analyzed on a discounted cash flow basis but an asset it is.  While ILITs are well known trusts, I am not aware of even one IHECMT for the borrower?

    • Reverse mortgages are somewhere in the middle between forward mortgage and life insurance products, in my opinion.  Right now the origination process is probably more similar to forward, but many of the assets risks involved relate directly to actuarial risks and translate to someone coming from that perspective.

      At the end of the day only Metlife knows what they’ll do with reverse, and even then the periodic evaluation process means nothing is ever set in stone.

      • Mr. Lunde, 

        As to MetLife, one can make a strong case why it would keep its reverse mortgage operations.  That case is further strengthened by the position being developed by Dr. Salter, CFP and Mr. Evensky, CFP.  At the same time one can argue that if MetLife does keep its reverse mortgage operations its financial assessment standards could easily become the most stringent in the industry.   

        Could the position advocated within the CFP community provide opportunities for those originate HECMs and are also licensed to sell various non-casualty insurance products or securities to sell prohibited products if HECM proceeds are not accessed to consummate the transaction?  Here the concept is the available credit line of a Saver would simply replace liquid assets which have traditionally been used as an emergency fund so that they can be freed up to acquire more productive assets.  Generally, no cash would be taken at funding beyond closing costs and cash would only be accessed in an emergency.  Since the cash available through the credit line would only be a standby (i.e., contingent) source of cash, how would a simultaneous sale of both products violate the spirit of HERA?  Right now a literal reading of the law seems to result in a violation but that is the domain of those licensed to practice law.  If it is a violation, an amendment should be crafted to exclude such sales. 

        Here in California, the question has more difficulties not only because of HERA but also because of California Civil Code Section 1923 [and the related subsections particularly 1923.2(i)] and California Insurance Code Section 785.1 which goes into effect on January 1, 2012.  Since the new California insurance law can have at least two different meanings, it is hoped the California Insurance Commissioner, Dave Jones, will provide a least restrictive interpretation. 

        As to new reverse mortgage originators, for years there has been an acknowledged value of life insurance producers and annuity salespeople over other non-experienced reverse mortgage originators including real estate salespeople and forward mortgage originators.  Some argued that the advantage for these individuals was familiarity with products which have a similar structure; others, the experience of selling assets which generate cash.  Somehow the answer seems somewhere in between.

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