At least in the short term, it appears those positioned to gain in the business are the smaller, more independent lenders of the past, now rising the ranks to become today’s largest lenders by volume.
The landscape has changed noticeably over the past 18 months, from a time where Wells Fargo, Bank of America and MetLife each had a stronghold on the market for retail and wholesale loans. Since their exits, in part attributable to the regulatory climate and rising compliance costs for banks as well as non-banks, many have wondered whether the new normal for the reverse mortgage market is the independent non-bank lender. Those who watch the market say: the end is not over for big banks, but there are a few things that need to happen before they will make a come back.
“Larger lenders will return when they feel that home values have stabilized and the FHA program has issued guidance on tax and insurance underwriting protocol to level the origination market rules for all lenders,” says Jeff Taylor, president of Wendover Consulting.
Home prices stabilizing and growing consistently as well as successful financial assessment of borrower to reduce tax and insurance defaults are also strong points in favor of larger players reentering, according to John Lunde, president of Reverse Market Insight.
But the timing of these changes remains to be seen as home prices remain down from their peaks by double digits in most markets—despite the most recent reports indicating a turnaround is imminent with 99 metros around the country.
The financial assessment question, too, has yet to be addressed successfully. Before its departure from the business, MetLife tried a financial assessment on for size, then as quickly as it introduced the new underwriting guidelines, it reversed them. Urban Financial, following MetLife’s announcement, floated its own version of financial assessment through its broker channel, but without ever implementing it. Genworth Financial Equity Access, too, said it was working toward making a change to underwriting. Yet, the only company to speak publicly about changes is Reverse Mortgage Solutions, which was recently purchased by Walter Investment Management Corp. for a sum of $120 million. RMS told RMD in April it had stopped buying closed loans that did not meet a certain criteria, and was in the process of making changes in its retail channel.
Once those changes do take place, say Taylor and Lunde, the market is positioned to attract new, larger players—and it will need them.
“Additional well capitalized lender/servicers will also be needed to grow the HECM HMBS securities market,” Taylor says. “The HECM market ship has not sailed, but rather is mooring off the coast to monitor new lender entrants and senior demand for the product and its acceptance.”
Written by Elizabeth Ecker