The reverse mortgage market rounded out 2012 with three major acquisitions of top-10 lenders, raising the question: will there be more?
After many months of a fairly stagnant mergers and acquisitions market, top lenders Reverse Mortgage Solutions, Genworth Financial Home Equity Access and Security One Lending were all acquired in the weeks and months leading up to and early weeks of 2013. RMS was acquired by Walter Investment Management Corp. in a deal that closed in late 2012, with the other deals—Ocwen’s acquisition of Genworth and Walter’s acquisition of S1L—expected to close in the early months of this year.
Whether other deals are on the horizon is not a certainty, but the deals may have given new life to the market for transactions among reverse mortgage companies, once pending product changes are announced by the Department of Housing and Urban Development.
“Product changes aside, while there may be some cooling off or a wait-and-see period, the industry will still evolve,” says Jeff Taylor, founder of Wendover Consulting.
The recent transactions may set benchmarks for future deals, although expected changes from FHA that promise to put a hold on the fixed standard reverse mortgage product could put a hold on that activity.
“The Walter-RMS, Nationstar-BofA and Nationstar-Metlife deals set reference prices for reverse mortgage servicing assets and Ocwen-Genworth and Walter-S1L deals set reference prices for reverse mortgage origination,” John Lunde, founder of Reverse Market Insight, told RMD in an email. “All of those deals were of course specific to the time and businesses for which they were agreed, but are very useful given we hadn’t had any real reference prices in the industry for several years previous to that beyond much, much smaller transactions that weren’t very comparable.”
The origination deals, since they are not yet closed, serve as a partial reference, Lunde says, with the FHA changes having strong bearing on the market depending on how the originations landscape responds.
“In my view, the more significant changes from FHA—tax and insurance set asides and financial assessment, any future principal limit factor changes—are still to come after the first indication of curtailing or eliminating Fixed Standard,” Lunde says. “It’s difficult to project volume for origination in particular given that these changes might be coming but no specifics have been announced, so any transactions announced before these changes would likely include a very conservative view of origination volume going forward and/or a higher discount rate to compensate for the risk of volume reduction due to these changes.”
Written by Elizabeth Ecker