[Update] Generation Mortgage To Exit Reverse Mortgage Originations

Generation Mortgage is winding down its reverse mortgage originations business including retail and wholesale operations, the company confirmed Wednesday.

The wind-down of the business will include the elimination of jobs across Generation’s originations platform, spanning positions based in its Atlanta headquarters and nationwide. The last day for new applications will be Wednesday, October 8, though Generation is maintaining its current pipeline of loans as well as its servicing platform and business.

The company is attributing the departure to a heightened and sustained regulatory environment and having seen reverse mortgage volume fall industrywide over the last 12 months as a result.

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“The decision to exit the origination business was not an easy one, but was made inevitable by the wave of recent regulatory changes,” Colin Cushman, CEO of Generation Mortgage, said in an emailed statement. “As a result of those changes, the industry has seen a reduction in the number of units, as well as a reduction in loan balances, significantly reducing origination revenues while increasing expenses.”

In light of a difficult operating environment, Generation based its decision on far more than loan count, Cushman told RMD following the announcement.

“The regulatory environment that hit a year ago and regulatory changes that have been impacting the industry are running deeper than currently reported when it comes to the way in which the marketplace sees the changes,” Cushman said. “It has been reported in unit volume, but there’s a lot more to the origination channels than unit volume.”

Both changes that have taken place as well as changes that are forthcoming were taken into account, Cushman said when asked about the long-delayed forthcoming financial assessment that is scheduled to take effect this fall.

“There are many [regulations] in the mix,” he said. “The timing of things that have not dropped or should have…they all go into any business decision.”

Generation is not making any changes on the servicing side of its business, the company said. It will still be operated under Generation and its parent company, Guggenheim Partners.

Generation has been an active issuer of reverse mortgage-backed securities, with roughly 6.7% market share in the first nine months of 2014, according to third quarter data compiled by New View Advisors.

Nationstar Mortgage is rumored to be eyeing the portfolio. In response to a request for confirmation of its interest in the portfolio, Nationstar told RMD the company does not comment on rumors.

Generation has long held its position as a top-10 reverse mortgage lender, but volume has declined of late, like many lenders have experienced. Over the last 12 months as of July, Generation counted 5.7% market share and 3,131 reverse mortgage endorsements as the No. 6-ranked lender in the business according to rankings tallied by Reverse Market Insight. Relative to endorsements overall, the company has lost some market share over the last 18 months. (See chart. Editor’s note: Chart does not reflect correspondent loans.)

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Chart provided by Reverse Market Insight. 

In August, the company reorganized some of its sales staff and hired for its wholesale team. In May it added several retail positions with an eye toward expansion.

It recently built and rolled out an award-winning technology platform marketed through its website nu62.com, to help prospective borrowers understand the reverse mortgage as a retirement planning tool.

On the heels of the announcement, the company’s first priorities is reverse mortgage borrowers, Cushman said.

“We will continue servicing all existing loans and funding all loans currently in process,” Cushman said. “As always, we are committed to providing our senior clients with our award-winning exceptional service on their accounts.”

Written by Elizabeth Ecker

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  • I am shocked over this announcement. This will stun the industry for a while. I am very sorry to see Generation leave and I wish all that are employed there only the best of luck!

    I feel it is a mistake to exit at this time but I know many days and nights went into this decision,it is sad, that is all I can say.

    John A. Smaldone
    http://www.hanover-financial.com

    • John,

      As stated in my comment above, it is surprising that Generation is the first to withdraw from the originating side of the industry. The drop in average revenue per HECM that we saw occurring throughout the industry in the last half of the prior fiscal year were astounding. Some of us believed that we would have seen at least one other larger lender drop out before now.

      Like you, it is troubling to see this turn in events but several of us expect to see at least one more shoe drop in the next 12 months or so.

      This is not a note of pessimism but rather of realism. Let us hope the results of the Extreme Summit can turn things around.

      (The opinions expressed in this reply are not necessarily those of RMS or its affiliates.)

      • Jim,

        I could not agree with you more. I think we have all seen this coming, especially over the past couple of years. It still is sad but like I said, I feel you are right on target.

        By the way, how have you been, it has been a long time since we have talked, give me a call one of these day’s. Make it a great weekend my friend.

        John Smaldone

  • A number of wonderful employees over there at Generation, who I had the pleasure to work alongside for several years. I know many of you will have no problem landing somewhere new. My best to you.

  • The article is odd in that it keeps coming back again and again to unit volume. The issue is not endorsements but rather as Mr. Cushman stated devastated origination revenues plus higher operating costs. In fact most can withstand the higher operating costs if average revenues per closing were approximately the same as last year but they are substantially less.

    Then there is the question regarding average maximum claim amounts this fiscal year which will be released in about 45 days or so by HUD. It is believed that to keep volume up many lenders went after relatively lower valued homes last fiscal year than at any time since fiscal 2005. If that is the case, industry-wide revenues are expected to be miserable.

    It is not surprising that a company like Generation is leaving the industry. What is surprising is that they are the first to leave over this issue. Some companies have the capital to withstand the bottom line crunch Mr. Cushman describes but few can withstand it for a considerable period of time.

    Our receding industry will not immediately rebound even if endorsement volume suddenly increases by 50% to over 77,000 endorsements during this fiscal year (which is highly unlikely). Our industry wide revenue problems are far more difficult to resolve than that.

    Good luck to Mr. Cushman and his team at Generation. Generation will be missed as an industry originating participant.

    (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

  • I must say I am a little surprised by this move as I had been hearing for months that they were going to be bought. It seems odd that no one would be interested in acquire them, must be carrying a lot of debt. As a company that has been around awhile I am sad to see them go. I did a Reverse for 2.4 million on a home in San Diego that was worth over 9 million, a record at the time. Good luck to everyone there.

    • EricSD,

      Congratulations on getting a reverse mortgage of that magnitude.

      Yes, it is sad to see Generation go and no doubt they looked for other ways to exit the industry but I believe that Colin stated the facts the way they are. What makes Generation unattractive to any prospective buyer is principally its problem with net income.

      Generation is not the only company having such trouble. Read the statements coming out of Walter for the last three quarters about the reverse mortgage operations situation shown in its financial statements; Walter is a publicly traded company which must give full disclosure about its financial situation. They all give the same message. The company is experiencing losses in its reverse mortgage division due to the tinkering of HUD to the HECM program. Worse they took a write down of over $80 million to their reverse mortgage asset called goodwill due to the industry outlook but that does not mean there is no reverse mortgage goodwill left. It just means that the portion of the purchase prices allocated to goodwill that it paid for RMS and S1L can no longer be supported in full as an ongoing asset due to market conditions. And, yes, like all “good but continuing” members of the industry it ends with the positive notion that senior population expansion will cure all ills (a very questionable conclusion based on endorsement history over the last 6 years).

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