Reverse Mortgage Private Equity Faces New Scrutiny From States

Over the past 18 months, the reverse mortgage market has seen a flurry of acquisition activity, with many parties expressing interest in reverse mortgage origination platforms as well as mortgage servicing portfolios.

Yet the deals that have closed lately have been completed by large, publicly held companies including Ocwen, Nationstar and Walter Investment Management Corp.

Private equity could be facing some new challenges.

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One relatively new barrier that has emerged for private equity is state regulation of private equity owners, said James Brodsky, of Weiner Brodsky Kider PC, legal counsel for the National Reverse Mortgage Lenders Association, before attendees of NRMLA’s west coast regional conference this month.

“It’s an unusually large role the states play, and are playing, in reviewing those who come into this industry with capital,” Brodsky says, noting the disclosures companies must provide including who they are and what their activities are.

“It’s a phenomenon that is relatively new,” he says.

States have always been involved in the regulatory process, from licensing of loan originators to disclosures and approvals, but states are seeking more answers than ever before when it comes to new interest in the mortgage market.

Those looking to capitalize in such a way by investment into a new business or through a partnership or collaboration will have to ensure they can provide answers for states from who owns their licensing to where their branches are located, who is managing them, who controls ownership and more—on a state by state basis—before any funding is completed.

Despite the new hurdles, companies are still interested in entering the space for a number of reasons, Brodsky says, and they are seeing opportunity relative to other investment opportunities.

“There are multiple reasons. There’s a need for recapitalization; as business partners become more risk averse, they seek big, fortified balance sheets so that risk can be absorbed. Or, strategic alliances,” Brodsky says.  “Investors see at a time when opportunities for other investment is small, there is real opportunity in this space.”

Written by Elizabeth Ecker

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  • What is new about this? If one looks at the top 10 HECM lenders 12 years ago, none of the companies on that list appear in the top ten today. Go back five years ago and the three biggest are gone without even trying to sell their reverse mortgage operations.

    The contents of this article looks more like hype than earth shaking news. For example, if anyone believes that Nationstar bought Greenlight in order to become involved in the reverse mortgage space should have their head examined.

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