RMF REIT Files for $100 Million IPO, Eyeing ‘Unprecedented Opportunity’

Reverse Mortgage Investment Trust, the REIT behind Reverse Mortgage Funding (RMF), has filed with the Securities and Exchange Commission to raise up to $100 million in an initial public offering.

The Bloomfield, New Jersey-based company, which was founded in 2013, plans to list on the NYSE under the symbol RMIT.

“We believe we are one of the most well capitalized companies focused on the reverse mortgage industry,” the REIT writes in its SEC filing. “During 2014, we experienced rapid growth. We achieved an approximate 12% HECM loan origination market share during the month of September 2014 (measured by Agency HMBS issuance) and managed approximately $785 million of reverse mortgage assets as of September 30, 2014.”

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Prior to this offering, there has been no public market for RMIT’s shares of common stock. The initial public offering price for its shares of common stock will be determined by negotiations between underwriters and the REIT. No pricing terms were disclosed.

“Our principal objective is to provide attractive risk-adjusted returns to our stockholders over the long term through distributions and capital appreciation,” RMIT says.

In its filing, the company cites an “unprecedented” market opportunity for reverse mortgages. Although the financial product has had low market penetration — estimates show only about 2.16% of eligible households had a reverse mortgage as of February 2014 — population demographics will push the product to the forefront of financial planning, RMIT says.

“We believe that reverse mortgage loans will become an increasingly important financial planning tool for baby boomers and other elderly Americans in their retirement years. In addition, market factors including favorable aging demographics, potential home price appreciation, ongoing effects of the recent mortgage crisis, large lender exits from the reverse mortgage market, increased liquidity needs and recent changes to the FHA HECM loan program have created an attractive investment opportunity in the industry. We believe that all of these factors have created an exceptional opportunity for us to implement our business plan,” RMIT says.

Today, a limited number of regional and national banks offer reverse mortgage loans. As of September 30, there were approximately 12,700 local community banks and credit unions nationally, but less than 2% of these banks and credit unions originated a HECM loan during the first nine months of the year.

However, over the next few years, the REIT expects that increased consumer demand will spur more traditional regional and local banking institutions and credit unions to make reverse mortgage products available to their customers.

“With a significant percentage of community banks and credit unions’ depositors being older Americans, we believe that there is an unprecedented opportunity to provide a comprehensive suite of services to these banking institutions where we provide back office services, including processing, underwriting, loan purchasing, servicing and other customized ‘white label’ services based on the individual banking institution’s needs,” RMIT says.

The REIT declined to comment further on its initial public offering.

Earlier this year, RMIT submitted a registration statement with the SEC in connection with its proposed initial public offering of its common stock, including the REIT’s expected acquisition of RMF. A few months later, RMIT acquired RMF and completed a private equity offering, raising $230 million in capital.

Written by Emily Study

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  • It is interesting how RMF paints itself and the industry. It is rare when the leading indicator of production for a full service (origination, servicing, and HMBS issuance) and Top Ten originating lender is HMBS issuance.

    However, based on just released information from HUD (its 10/2014 production report), HECM case number assignments for October 2014 are 8,464. In fiscal 2014, no month had higher HECM case numbers assigned except August 2014 at 11,415 due to the previously announced higher PLFs going into effect on August 4, 2014.

  • As a publicly traded entity, RMIT will be required to disclose its financial information. I am sure most lenders will be eager to see just how well RMIT really is doing and if it is simply living off of its equity. If it is doing well, that bodes good things for the industry.

  • It is interesting to read the company SEC Form S-11, since in it one finds a lot of information both about the company and the industry. I cannot remember ever reading such detail on a reverse mortgage company’s financial operations.

    In the first part there is a mixture of industry myths, facts, immaterial math errors, and very useful insights. For example, the filing claims the “amount is determined at the time of loan origination and does not change over the life of the loan.” Yet that is nonsense since the HECM Handbook (4235.1) states at Subsection 5-9 C.:”The net principal limit for any subsequent month is the future value of the principal limit determined using the elapsed number of months as the term and the compounding rate described in Paragraph 5-7C. above, less any funds set aside and the outstanding balance of the loan in that month.” If the principal limit did not change, how could it have a “future value?” The compounding rate is what we today call the growth rate, i.e., one-twelfth of the sum of 1) the current note rate and 2) the annual MIP ongoing rate (currently 1.25%).

    The operations of RMITI are divided between their subsidiary operating units and RMITI as the parent. For 2014, three and nine month periods of unconsolidated and consolidated operations are reported without audit and also using estimates for some information rather than actual numbers as one would normally use in an audit.

    Without their investment activities in purchasing existing pools of reverse mortgages (HECMs as well as proprietary) in the open market, the unaudited consolidated income statement for the nine month period ended September 30, 2014, would have shown a loss of over $13 million; however, unrealized gains from the reverse mortgage investment pools were a little over $21 million. Thus consolidated net income for the period was $7.6 million.

    It is also interesting to note that for the three month period ended September 30, 2014, the company saw about a $108,000 consolidated loss from HECM originating, reverse mortgage servicing, and HMBS issuing operations. The loss from RMF for the period of January 1 to July 10 (the date of acquisition of RMF by RMITI), 2014, however, was far worse at over $5.6 million.

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

    You can find the Form S-11 for RMITI at http://secfilings.nasdaq.com/filingFrameset.asp?FileName=0001047469-14-010050%2Etxt&FilePath=%5C2014%5C12%5C19%5C&CoName=REVERSE+MORTGAGE+INVESTMENT+TRUST+INC%2E&FormType=S-11&RcvdDate=12%2F19%2F2014&pdf=

  • Personally, I feel this is positive news for the industry, RMF has confidence that good things will happen in 2015.

    RMIT and RMF apparently sees a great opportunity in 2015, this is the reason for the public offering.
    This move most certainly pumps up the confidence that the HECM product once again could be a great financial planning tool for Baby Boomers and older seniors to use for additional funds to improve there quality of life!

    I am going to place my bet on 2015 being a good year on many fronts!

    Happy New Year to all!

    John A. Smaldone

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