The Biggest Reverse Mortgage News of 2011

It has been an eventful year for the reverse mortgage industry. From losing lenders, fighting a battle over loan officer compensation and seeing the first-ever financial assessment for borrowers, RMD compiled the top-10 most read stories this year. Hot topics include lender exits and loan officer compensation, in order from most- to least-read.

#1. February 4: Bank of America to Exit Reverse Mortgage Business. Bank of America tells employees it will leave the reverse mortgage business, citing a need to focus on its core mortgage business. The company continued its reverse mortgage servicing business until it sold the servicing rights to Nationstar in December.

#2. June 16: Wells Fargo, Largest Reverse Mortgage Lender to Exit Retail Business. Wells Fargo confirms it will no longer offer reverse mortgages to customers, stating that unpredictable home values and HECM program limitations make it difficult to determine seniors’ abilities to meet the obligations of homeownership.

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#3. March 21: OneWest Exits Reverse Mortgage Business, Shuts Down Financial Freedom. The former industry mainstay shuts down all reverse mortgage channels, citing the regulatory environment and desire to focus on the bank’s core businesses.

#4. June 19: Leaked Wells Fargo Email Provides More Info on Reverse Mortgage Exit. An email obtained by American Banker shows that Phil Bracken, an executive vice president of Wells Fargo Home Mortgage, was worried that the Department of Housing and Urban Development would force it to foreclose on senior citizens with delinquent reverse mortgages insured by the Federal Housing Administration.

#5. April 1: Federal Reserve’s Loan Officer Compensation Rule Delayed. Just for a few days, the industry waited as the U.S. Court of Appeals granted a stay on the Fed’s loan officer compensation rule. Industry groups had sued the Fed against the rule, but ultimately lost and the rule was implemented within a week of the initial implementation date.

#6. March 1: Wells Fargo to Exit Wholesale Reverse Mortgage Business. Wells Fargo exited the wholesale business, and cut off applications to its broker channel after March 18th.

#7. April 5: Groups Reply to Fed on LO Compensation Rule Delay; Court Lifts Stay. The rule goes into immediate effect as a result of the court stay being lifted by the U.S. Court of Appeals.

#8. February 8: Bank of America Reverse Division is Profitable, Still Decides to Close it Down. Speculation swirls about Bank of America’s decision to leave the business, despite showing profits from its reverse mortgage business arm.

#9. November 4: MetLife Makes History, Implements Financial Assessment for Reverse Mortgages. MetLife implements a financial assessment for reverse mortgage borrowers that considers whether they are willing and able to pay property charges. Other lenders say they will follow after MetLife’s guidelines go live.

#10. March 30: NAMB’s Loan Officer Compensation Lawsuit Heard; Denied. The suit against loan officer compensation is heard, but denied in court, before the Court of Appeals places a stay on the rule, extending its implementation date by less than a week.

Written by Elizabeth Ecker

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  • The first four stories were about the former Big Three withdrawing from the industry.  That was the subject of six of the top ten stories.    

    When I took the survey yesterday before this story was posted, the biggest story by even a wider margin than now was Wells Fargo.  That was strange since Wells Fargo had given so many indications they would quit.
    The B of A decision was a shock because they were closing without even trying to sell their turn key retail operation despite paying a few hundred million for it less than half a decade before.

    Anyone who was amazed by the move of MetLife Bank does not understand the moves of major corporations.  MetLife Bank did what was right for MetLife.  Some called it cherry picking and others feared it.  Was MetLife Bank wrong?  It all depends on your view.

  • The first four stories were about the former Big Three withdrawing from the industry.  That was the subject of six of the top ten stories.    

    When I took the survey yesterday before this story was posted, the biggest story by even a wider margin than now was Wells Fargo.  That was strange since Wells Fargo had given so many indications they would quit.
    The B of A decision was a shock because they were closing without even trying to sell their turn key retail operation despite paying a few hundred million for it less than half a decade before.

    Anyone who was amazed by the move of MetLife Bank does not understand the moves of major corporations.  MetLife Bank did what was right for MetLife.  Some called it cherry picking and others feared it.  Was MetLife Bank wrong?  It all depends on your view.

    • Critic,
      You are right about the bank exits crowding the top-10. The results in this post are from our measure of reader visits over the course of the year, not the results of the survey posted earlier this week. That survey aims to find out what readers think the biggest story was whereas the top-10 list is based on actual data.

      Elizabeth

      • Elizabeth,

        I understand.  

        In fact the survey was measuring something different than what was measured in this story, opinion of which story was more important vs. number of times the story was read.

        My comment was on how skewed the survey results were in relation to the number of times the B of A story was read in relation to the Wells story.  It is my view that of all the stories published last year, the Wells story produced the strongest reaction due to its impact on so many originators.

            

  • While at Bank of America, my VP told me the Reverse Mortgage division was the size of a flea on a dogs back, in comparison to the rest of the bank.  Nonetheless, I was still really surprised when it happened, especially since the division was profitable, compared to the rest of the bank.

    • Mr. Denton,
       
      Was the reverse mortgage operations actually profitable or are you presenting a distorted view of its operations?  No one will know if those operations were or were not profitable until after all of the reverse mortgage B of A originated have terminated.
       
      In other words, a HECM which was originated in 2009 may be foreclosed due to default on taxes in 2017.  Was that loss estimated in the profits of B of A for 2009?  What if the actual total losses on HECMs originated in 2009 exceed the total profits B of A were the profits declared in 2009 factual or just illusionary? 
       
      In 2009, Bank of America reverse mortgage people did not want to terrify senior management with the concept that they had no idea what the losses from defaults might be.  They estimated as best they could but within 4 years, their estimates could prove out true but in all likelihood they were using an estimate of about 1%.  Well, as of July we found out that it stood at 8% before recoveries.  Where is the percentage today before recoveries, 10%, 11%, or 12%?  If one has to wait at two years from the initial default to foreclose on irreversible defaults, how many more defaults will there be on the same loan?
       
      While most of the 8% in July was owned by Fannie Mae with no recourse against lenders, most of the defaults in the future will be in HMBS pools with recourse against lenders.  What if 14% of those go into default with three years of defaults on each of those loans?  These numbers can get pretty staggering.  If home values turn around and HUD issues financial assessment modification guidance soon, it would seem the exposure would drop dramatically.
       
      So let me return to the beginning.  What might have looked like profits in 2009 might be nothing more than temporary, fleeting profits as the related HECMs mature and more defaults begin occurring over time.

    • Mr. Denton,

      Were the reverse mortgage operations actually profitable or are you presenting a distorted and illusionary view of operations? No one is saying B of A did anything intentionally wrong like Enron but what is being asked is did B of A substantially underestimate the potential loss from defaults?

      For example, say B of A in early 2010 estimated that its total defaults on HECMs originated in 2009 would be just 1% (common thinking at that time) of all the HECMs it originated for that year and the losses would be limited to two years of defaults on each of those it projected will default; its profits for 2009 would reflect that (low) level of loss. But now it is very late 2011, and let us say the estimate is NOW that 12% of all HECMs originated in 2009 will go into default and that the defaulted loans will reflect at least three years worth of defaults with may be only 1/6th of the amounts recoverable. Were the profits you cited real or illusionary? Remember the 2009 profits were only an estimate based on the information available as of the time the profits were reported.

      Will the percentage of unrecoverable defaults be 10%, 11%, or even 18% of all the outstanding HECMs now sitting in HMBS pools or in lender mortgage portfolios? Will there be one, two, three, or more years of payment defaults involved on those defaulted HECMs? While we know that issuers/lenders are clearly responsible for those HECMs insured by Ginnie Mae, how much liability do they have for other investor owned pools of HECMs?

      B of A, Wells, and all public reverse mortgage lenders are struggling with this issue as I am writing this comment. There could be some huge hits from HECMs originated in prior years which are required to be reflected on the books of reverse mortgage lenders NOW due to poor estimates of the magnitude of the losses stemming from payment defaults for several years on the same defaulted HECMs. Of course this does not apply to HECMs purchased by Fannie Mae.

      Some of the things which will stop this bleeding are: 1) an extreme turn around in home values, 2) the ability to decline applicants whose financial information clearly indicates their clear propensity to default or modify the related HECM, and 3) a clearer understanding by applicants that there are consequences to not paying insurance and taxes due to better information in origination and in counseling. The last two items will only impact future originations. MetLife Bank is the only lender right now making any real attempt at the second item (through its implemented financial assessment underwriting).

  • Elizabeth,

    You wrote a great article, 2011 was quite the year, you recapped it very well!lets all hope 2012 is a better year for our country. We should also hope we will see some stability improvement in the coming New Year!Happy New Year to all of you my friends and be safe!God speed,John A. Smaldone

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