Where Industry Leaders See Reverse Mortgages Going Next

While reverse mortgage lenders have seen a down year for volume that is now wrapping up with long-awaited product changes that will shift the nature of originations, industry leaders are still seeing potential ahead.

They’re taking different strategic approaches to growth, in some cases to diversify their businesses, executives told attendees of the National Reverse Mortgage Lenders Association conference in Miami this week.

“Principal limit reductions, and non-borrowing spouse issues are old news now,” said Reza Jahangiri, CEO of American Advisors Group, the largest lender by volume, which now counts 850 employees.


The biggest changes are in the past, Jahangiri said.

“It did impact all of us. It’s an economic hit and the net was shrunken by principal reductions and restrictions that took down loan balances. But the ‘net net’ was a good thing. We’re past it, we solved issues that needed to be addressed and now the Mutual Mortgage Insurance fund is back in good standing.”

The Department of Housing and Urban Development reports annually on the standing of the fund; its 2012 report indicated there were substantial losses in the Federal Housing Administration’s reverse mortgage portfolio that led to FHA receiving a billion-dollar bailout from the Treasury that year. The review indicated a negative subsidy rate last year, following program changes, and reports have suggested that the MMI fund will be in even better standing this year, though specifics have not yet been announced.

While AAG started as a large retailer of reverse mortgages, it has been ramping up its wholesale business since it launched two years ago.

“It helps flatten peaks and valleys,and hedges against the different channels.” Jahangiri said, noting the company’s recent acquisition of a field platform to help establish a feet on the streets footprint.

Contrary to AAG’s growth in wholesale, another major lender, Urban Financial America, historically a wholesale lender, says it is targeting retail growth.

“As a wholesale platform, strategically growing retail makes us a better partner, because we get to go through what our partners go through,” said Steve McClellan, UFA CEO. “Strategically we felt like there was a path to pursue different lead gen and grow differently from TV and other direct lead gen… We have growth retail from 5% to 17% of our business and it is doing well for us.”

Urban also changed ownership last year, from its previous parent company Knight Capital Group to an investor group led by an experienced forward mortgage finance leader.

Investors, individual and institutional, are still seeing opportunities in the market, the panel concurred.

Reverse Mortgage Funding, a relative reverse mortgage newcomer, though its leadership counts numerous reverse mortgage veterans, is growing its business across all channels with the help of a $230 million capital raise completed this year, that led to the company being acquired by a real estate investment trust, Reverse Mortgage Investment Trust.

“The business strategy was not just to get into mortgage banking activities but really to create a model by which we are still engaged in mortgage banking activities but in investment activities as well,” said Joe DeMarkey, head of product development for RMF. “That makes us unique. We’re investing in all channels….We are big fans of the HECM for purchase product and we think that’s a huge untapped opportunity.”

While recent changes have been painful on the lending front, they have been necessary, the panel agreed.

“We wouldn’t be here if not for the changes that took place last September,” DeMarkey said. “FHA got it right. We realize the pains in the change, but the alternative could have been infinitely worse.”

He added, “I think we will have tailwinds instead of headwinds with the last rule to drop.”

Written by Elizabeth Ecker

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  • FHA did NOT get it right.

    What FHA did was stop the program from being lost but their means of doing that cannot be described as anything less than draconian. It is so bad that even the industry is changing the way it markets this product since so many in our traditional market base (needs based seniors) find the product no longer useful in meeting their needs. And, yes, I believe that the product has been abused since fiscal year 2008 as home values were collapsing but FHA allowed principal limit factors to continue despite warnings that doing so would irreparably damage the MMI Fund ultimately requiring a taxpayer bailout.

    FHA was late to the game. It was known in the Spring of 2009, the program was in trouble when OMB so strongly challenged the HUD projected small negative subsidy credit for the HECM program in the fiscal 2010 budget with a positive credit subsidy of $798 million (see http://rmdaily.wpengine.com/2009/05/07/obama-administration-requests-798-million-to-aid-reverse-mortgage-program/). HUD refused to do anything about this because it could not admit its program projections could be that wrong but in the case of the HECM program, it was.

    New View Advisors were constantly warning of the need to reduce Principal Limit Factors long before the estimate of OMB in Spring 2009. New View Advisors raised their concerns in their blogs and when they spoke publicly.

    How bad things got, HUD placed a total of almost $2.3 billion during fiscal years 2010 and 2011 into the HECM portion of the MMI Fund just to get a slight positive ending balance as of the end of fiscal 2011. They got these funds from other MMI Fund programs thus effectively robbing Peter to shore up Paul (i.e., the HECM program). Yet it became so bad that by the end of fiscal 2012, the ending balance was once again projected to be negative. Not only did the independent actuaries project that number but the CPAs auditing HUD that year found that number to be reasonable, not requiring any material change in its audit report.

    Besides taking $1.7 billion from the Treasury, HUD also took an addition $4.5 billion from other MMI Fund programs during fiscal year 2013. Thus the total HUD has taken from other sources to bolster the HECM program now exceeds $8.5 billion. And all of this had to be done in the face of HUD increasing the ongoing MIP from 0.5% to 1.25%.

    The actual and factual record does not back those who conclude that HUD got it just right. HUD did not and other MMI program participants and US taxpayers are paying for its arrogance and refusal to change until it was almost TOO LATE.

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