Is there Still A Sweet Spot for Banks in Reverse Mortgages?

While big, blockbuster banks like Wells Fargo have left the reverse mortgage industry for the time being, one smaller type of bank could stand to make some new waves—there may still be a sweet spot for banks that are not nationally chartered, but state chartered. 

The regulatory pressure brought by the Dodd-Frank Wall Street Reform and Consumer Protection Act led one lender, MetLife, to shed its bank business entirely. In the wake of the reform, others, too, like Wells Fargo, which previously exited the reverse mortgage business, moved away from brokered loans to ensure more control over the lending process. 

With the formation of the Consumer Financial Protection Bureau, banks and non-banks alike are subject to scrutiny on the federal level, driving some banks out of the market. 

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But no having to go through the process of licensing each loan officer in every state where they operate is a definite plus, says Dave Cesario, national sales and production manager for MSI Reverse, which operates as a subsidiary of state-chartered First State Bank. Also not having to work under the federal requirements, as is the case under a state charter, can present a benefit to doing business. 

“It’s kind of a hybrid, he says. “With a federal bank you get away from a lot of the requirements, but have to work with Dodd-Frank. In the case of a state charter, you have to work with the state requirements, but they tend to be [less stringent] than the federal rules.”

Several of these players including Proficio Mortgage, a wholly-owned subsidiary of Proficio Bank, which is state-chartered in Utah, and FirstBank, a Tennessee state-chartered bank, have recently announced plans to grow into the reverse mortgage space following the big bank exits. MSI is following suit. 

The company recently grew its reverse mortgage origination team from four to 20 and expects to broaden its presence beyond the 42 states where it is currently licensed. The opportunity is in many ways like working in a big bank setting but without some of the overarching regulation, Cesario says. 

“With federally chartered banks, everyone is concerned about what the regulations will be. It’s kind of a moving target. It’s hard to say there will or won’t be a lot of players because we don’t know what the landscape will look like,” he says. 

Given that uncertainty, however, Cesario sees the potential of the state chartered bank model. 

“Is it a sweet spot? I think it might be. There are a lot of issues having to do with disclosures, [good faith estimate] and the CFPB… while subject to some, this bank platform is not subject to all because of certain preemptions.” 

Written by Elizabeth Ecker

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  • Perhaps Mr. Cesario can explain why the business risks related to reverse mortgages are any different for a subsidiary of a federally chartered and a subsidiary of a state chartered bank.  Then it would be great know how the regulatory atmosphere is so different when it comes to a reverse mortgage business operating as a subsidiary of a federally chartered bank is any different than that for a state chartered one.

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