At the Right Price, Plenty of Reverse Mortgage Acquisition Opportunities

There is plenty of interest from outside investors in the potential of the reverse mortgage industry, panelists told attendees of the National Reverse Mortgage Lenders Association conference in San Antonio, Texas last week.

Fresh off the announcement by Walter Investment Management Company (NYSE: WAC) that it plans to acquire Reverse Mortgage Solutions for $120 million, there could be other deals on the horizon.

“I believe we will see new players make investments, based on what we saw when we took our company to the market,” said Marc Helm, president and chief executive officer of Reverse Mortgage Solutions. During the process, Helm said, he was encouraged by how familiar potential investors were with the product and overall space.


New investors will be critical for the market to bounce back after the loss of Bank of America, Wells Fargo, and MetLife. Pete Engelken, president of Genworth Financial Home Equity Access said those who are acquiring portfolios or investing in Ginnie Mae securities may lead to additional investments in the industry.

“We’ve seen institutional investment; I don’t believe that this time around it won’t continue,” he said.

Nationstar (NYSE: NSM) has been active in the mortgage servicing business, including its recent acquisitions of Bank of America and MetLife’s reverse mortgage portfolios. While the company hasn’t made any investments in the origination side of the business, it could happen. During a call with analysts discussing Nationstar’s Q2 earnings, CEO Jay Bray said he sees it as a growth area for the company.

“I think that [reverse mortgages are] an area of growth. Clearly not close to what we can do on the forward side. And then longer-term, if you think about again the demographics of the country and politically how important that product could become over time, I think it is a strategic space for us to seriously consider to invest in.”

The deal between RMS and WAC has set a benchmark for the reverse mortgage industry, says Mike McCully, partner at New View Advisors, an investment banking and consulting company. While the transaction is positive for the industry, McCully worries that other companies might believe they’re worth a similar amount. RMS was unique because it’s a servicer, technology provider, has an REO platform, and is one of the largest HMBS issuers in the business.

“Sellers will likely believe their respective companies are worth more,” McCully said. “This dynamic could produce fewer transactions, not more.”

One of the biggest concerns for companies looking to acquire or make significant investments in the space is the decline in volume year over year. With origination volume expected to be in the 60,000 units range for 2012, the downward slope over the last few years is a concern.

“While everyone recognizes the overwhelming demographics that support long-term acceptance and growth of reverse mortgages, industry volume has been contracting since 2009. That’s a principal concern, as growth is the main cornerstone of investment,” McCully said. “At the right price, there are other transactions that could occur,” McCully said.

Join the Conversation (2)

see all

This is a professional community. Please use discretion when posting a comment.

  • At a very basic level, our industry’s investment thesis can be summed up in two parts: investments that pay for past performance and those that help create future growth.

    The Nationstar transactions cleared the decks for lenders that wanted to exit but had servicing portfolios grown from past success in the industry.

    The WAC/RMS transaction probably had a portion of the deal attributed to servicing portfolio but given that RMS is now one of the largest HMBS issuers it would seem logical that the rest of the deal is paying for future earnings on loans not yet originated/sold.

    The most interesting transactions to see from the perspective of future growth of the industry will be those where new companies are formed and/or existing companies enter origination to take advantage of the demographic opportunities in reverse.  We’ve seen relatively little of that in the past few years, but additional distribution opportunities are the biggest catalyst for our industry to grow right now.

  • RMS had at least three basic business operations our industry recognizes:  servicing, HMBS issuance, and HECM origination.  One could look at the transaction and conclude that the purchase price might have been higher if only two of the three operations had been sold:  servicing and HMBS issuance.

    The origination piece at least as to RMS is relatively new and as of yet greatly untested and unproven.  With the Big Three (WF, B of A, and ML) all abandoning their HECM originating operations, proven market value of HECM originating operations is at best zero if not negative.

    HECM origination operations are not only rife with contingent liabilities from tax and insurance nonpayment defaults of yet to be determined total dollar size but there is little if anything in place which can mitigate such losses on an ongoing basis other than just outright rejecting applications.  Beyond that the total case number assignments for the first three months (June, July and August 2012) of twelve from which endorsements will emerge are lower than that same total for last fiscal year.  Then there is the ever declining annualized conversion rate.

    Calendar year estimates of 60,000 endorsements are misleading.  For nine months of this calendar year we do not even have 41,000 endorsements.  How in the world will we reach 60,000 endorsements by year end?

    Making an endorsement is like baking a cake with less ready ingredients.  From the time that the fundamental ingredients arrive [initially completed and signed application and signed counseling certificate(s)] to the time that the endorsement has been “frosted” (completed the endorsement process) runs on average about four months.  The three months of fundamental ingredients needed for the next three months of “cake baking” were received between June 1 and August 31.  But the amount of ingredients were insufficient to get to 60,000 endorsements by year end.  HUD informed us about the situation about a month ago.  Part of the problem is that month by month our cake baking capabilities have been going down and down (the annualized conversion rate is still declining).

    Based on raw numbers, it is hard to justify endorsement totals for this calendar year of more than 56,000 and are likely to be lower than for the fiscal year at 54,822.  Those kinds of numbers are not those of a growing and thriving industry for which buyers pay a premium even though many lenders did better than ever last fiscal year.  Unless the industry grows sooner or later reduced overall production will strike most if not every single lender.  Current individual lender growth finds its greatest source from the business abandoned by the so called Big Three and FNB of Layton, Utah.

string(115) ""

Share your opinion

[wpli_login_link redirect=""]