Has Reverse Mortgage Lender Competition Hit Rock Bottom?

By some measures, yes, it looks like the competition for reverse mortgage lenders has hit bottom. Whether that is a good thing or a bad thing is another story.

Despite the changing landscape for reverse mortgage lenders and the move away from big banks who offer the loans and toward smaller, more specialized companies, the competitive landscape, from a numbers perspective, looks almost just as it did 12 months ago. It is also at the lowest level it has been in more than two years.

It may come as a surprise to some lenders, for which the competition seems tighter than ever before, with some reporting challenges in originating loans today due to struggling home values and new loan requirements for some lenders. But an earlier decline in the number of lenders from more than 1,200 in early 2009 to slightly more than 600, or half as many today is likely due to the business factors like changed loan economics, lower volumes and more regulation, says John Lunde, president and co-founder of Reverse Market Insight.

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“It seems logical that some companies that were active but for whom HECMs were a secondary business area pulled out as their primary business required more attention and/or became less profitable,” Lunde says.

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Source: Reverse Market Insight

The waters are muddied slightly by the fact that the Federal Housing Administration changed its policy for allowing non-FHA-approved brokers to originate Home Equity Conversion Mortgage (HECM) loans in the second quarter of 2010. The number of FHA approved HECM lenders, at less than 300 in December 2011, dropped sharply following that policy change. By RMI’s count, however, the number of originators continues to hover around 600.

That, Lunde says, looks pretty much like the bottom.

Is the lack of competition a good thing? Some say yes, it’s better for business.

“Yes, the business is harder than ever to get loans through,” says John Mitchell, founder of Reverse Mortgage USA. “But there’s a lot less competition, so you take the good with the bad.”

From an overall industry perspective and consumer standpoint, however, getting back to a stable base of lenders is the goal.

“A steady base of active lenders is better than continued declines,” Lunde says, noting that stability preserves price competition and broader distribution and access of reverse mortgages. “For lenders it’s better for the market to keep enough active lenders to retain investor interest and political heft, such as it is.”

Building the lender base up once again will depend on the same factors that are expected to spur industry growth overall.

“The keys would be increased loan volume and increased loan profitability,” Lunde says.

Written by Elizabeth Ecker