Federal Savings Bank Targets Big Potential For Reverse Mortgage Growth

While the reverse mortgage industry has shifted somewhat toward lenders that are more specialized, and away from large banks, federally chartered banks may be uniquely positioned during a time of industry change. And one Illinois-based bank is eyeing the future of the product as an area of growth. 

The Federal Savings Bank, based in Chicago and with loan production centers across the country, has been active in the reverse mortgage space for several, but as of 2012 has made a concerted growth effort in the space, and today says it has its sights on becoming a mainstay top-10 lender at a time when the industry can benefit from the presence of federal banks.

“We’re very very serious about the [reverse mortgage] business,” Federal Savings Bank CEO Steve Calk tells RMD. “We think it’s a tremendous service to seniors and we see a tremendous need for this product. On many levels it’s a way for people who have worked their whole lives to be paid back on the biggest investment they have made.”

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The company closed just a handful of reverse mortgage loans in 2014, according to data from Reverse Market Insight, and had already closed 32 loans in 2015 according to RMI’s most recent data analysis as of January 2015. 

With origination operations across the country and a federal charter that allows it to close loans in every state, The Federal Savings Bank says the time is right for growth. Since its launch in 2011, the bank overall has grown from nine employees and one office to approximately 600 employees throughout 18 offices, with its reverse mortgage division being led by executive vice president Mike Crossett. 

“Our goal over the next three years is to fund hundreds of reverse mortgage loans monthly, with the highest quality originators who educate our customers and represent The Federal Savings Bank and the industry in the highest regard,” Crossett says. 

Product changes such as the introduction of a borrower financial assessment have caused some setbacks, he says, but will ultimately present an opportunity for borrowers and the industry alike. 

“There have been a lot of changes to the product, and many are saying that implementing financial assessment will result in volume declines of 10-20%,” he says. “But the reality is when you look at the number of seniors who can and should consider a HECM as part of their overall financial plan, the industry should grow substantially this year and for many years to come. It is our mission and passion to help educate seniors on how a HECM can and should be an instrumental component to their overall financial plan.”

But program stability will be an essential component not just for growth within the bank’s reverse mortgage channel, but for the industry as a whole, he says. 

“HUD has made a lot of positive changes to the program, with the non-borrowing spouse issues figured out and with financial assessment coming. While these changes are positive, the number of changes, and speed at which they’ve been implemented, have made it difficult to deliver a simple, consistent message to the seniors. I would love to see the program stabilize for a couple of years so the industry can deliver a consistent message to the consumer.”

While the changes are under way, the bank is busy targeting growth overall and through calculated reverse mortgage decisions. 

Earlier this year it acquired Baytree National Bank & Trust Company in Lake Forest Illinois, which will add to its footprint for reverse mortgages, its executives say. 

New product introductions may also fuel growth for the bank. 

“We’re committed to the business and continue to find ways to do it smarter and better and will develop proprietary products to serve seniors in this space,” Calk says. “We haven’t even scratched the surface yet, but we think the industry is screaming for a strong federal depository to get behind the business and show we are committed to it.”

Written by Elizabeth Ecker

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  • We have all seen claims such as the one above: “…the industry should grow substantially this year….” Yet what does substantially mean? Is it 5%, 10%, or something greater? Are 1,000 additional endorsements in the first quarter of this fiscal year when compared to the same quarter last fiscal year substantial? By someone’s standard it most likely is.

    Now that financial assessment has been delayed, its drag on HECM endorsements most likely will not start until fiscal 2016. So there is a strong possibility that endorsements for this fiscal year could be 10% greater than last but there is little way that it will exceed HECM endorsements for fiscal 2013 of over 60,000. If fiscal year 2015 HECM endorsement volume is marginally above 54,850 (a somewhat likely outcome), it will only be the third worst fiscal year for endorsements in this decade but it will not even be 50% of our second best fiscal year for endorsements. How can one call that substantial growth although many will take comfort in any harbor during a storm and describe it as the best possible outcome?

    If financial assessment is introduced by early June 2015, fiscal 2016 has the strong probability of being the worst fiscal year for endorsements in the last 12 fiscal years. So even though Steve predicts that “the industry should grow substantially … for many years to come,” other than a very questionable foundation of demographic growth, Steve brings little to the article which provides any measurable support for substantial industry-wide growth before fiscal 2018 as compared to fiscal 2013.

    Those who insist on dredging up the old “when Boomers begin turning 62, we will be in our heyday” nonsense, show how little they understand this industry. For those who do not realize it, January 1, 2015 was the start of the EIGHTH year in which Boomers are turning 62. So if the tale about demographic growth is to be believed, where are all of the endorsements hiding?

    It is highly unlikely we will see the volume of endorsements we had in fiscal 2008 (the first fiscal year in which Boomers began turning 62) until at least fiscal 2019, if then. At that point we will celebrating the 12th anniversary of when Boomers first starting turning 62. The US population segment which is over 62 by fiscal 2019 will be enormously larger than on December 31, 2007 but that increase will NOT be reflected in our endorsements numbers over that time period. The endorsement volume trend will show insignificant correlation with the growth of those over 62 in the US. The immediate impact of the Baby Boom demographic turning 62 on HECM endorsements should be fully discredited at that point.

    The foregoing prediction is neither optimistic nor pessimistic. It is simple a realistic assessment based on historical patterns.

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