Walter Investment Bullish on Reverse Mortgage Market Opportunity

Walter Investment Management Corp. (NYSE: WAC) remains optimistic of its future growth in the reverse mortgage sector, according to comments made by company executives during a conference this week.

Following a $56.5 million goodwill impairment charge related to its reverse mortgage business for the second quarter ended June 30, 2015—which contributed to the company’s net loss of $38.1 million during the quarter—and a recent settlement with the Department of Justice regarding Reverse Mortgage Solutions (RMS), the company’s reverse mortgage servicing arm, Walter remains bullish on its reverse mortgage platform.

The optimism is due to a “comprehensive review” Walter took on its reverse mortgage business—comprised of the RMS and Security One Lending platforms—which included the company making changes to this business segment and “re-forecasting” long-term cash flows, said Gary Tillett, executive vice president and chief financial officer at Walter, during the Barclay’s Global Financial Services Conference in New York on Wednesday.

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“We feel good about the business,” he said. “We feel good about the platform and the space, and we’re looking forward to improving the company’s results in the future.”

Walter’s reverse mortgage channel encountered some challenges during the second quarter, including generating nearly 50% lower revenue compared to year-ago levels, but also in the third quarter, following the $29.63 million settlement to resolve allegations that the company violated the False Claims Act in connection with its participation in the Home Equity Conversion Mortgage (HECM) program.

“We’re happy to have that settled and now we can move one,” Tillett said.

The company is also positive on the recent changes to the HECM program, namely the Financial Assessment, which should provide for a “much better product,” said Denmar Dixon, Walter’s vice chairman of the board, executive vice president and chief investment officer.

“So they [FHA] have now implemented a process where you do some underwriting and you look at the borrower’s ability to pay,” Dixon said. “And to the extent that if they have it, you are good to move forward, but if they don’t, then there are some ways to reserve some of the availability in the loan to allow them to still qualify. It should provide for a much better product over time for the borrower and the servicer.”

Looking ahead, Walter plans to continue building out its distributed retail and consumer-direct channels in the reverse mortgage space, as well as make further investments in training and technology.

“We’ve had a decent amount of success getting that underway and we are optimistic about the market, the lack of penetration in the market, and our ability to grow those businesses over time,” Dixon said. “There is a good market opportunity, and if we focus on our investment in training and give our loan officers the technology to do their jobs, we’ll see better than organic growth in the businesses.”

Written by Jason Oliva

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  • How does financial assessment make HECMs a better product? While it makes it a safer one for borrowers, being safer does not always make it better for consumers. If all that is being done is to eliminate some percentage of the 10% of borrowers who were going into default then have we achieved all that much.

    What if we our endorsements rates drop by 12% but only 3.5% of borrowers are defaulting, do we really know if financial assessment has reduced the number defaulting or was it really better economic conditions which contributed highly to the reduction? Is the 12% loss in business really worth it? What about those who were in that 12%, do we really think they have concluded that the HECM is better?

    A better product is based on the perspective of the observer. Let us just say, there is still substantial disagreement on that point.

  • I have a different view on the FA ruling that RMAAdvisor has. However, I am not saying the comment is all wrong.

    I look at what Walter Investments view is overall and I really do agree with it. We do have a lot to be optimistic about.

    The FA ruling has definitely slowed down the pace of originations but this is only temporary, there is still a lot of adjustment to go through on the part of originators, processors, underwriters and the compliance departments of banks and mortgage bankers.

    However, let us look at the positives of the FA ruling. Yes we realize we are going to lose a percentage of the senior market as RMAAdvisor points out. Another way to look at it is, did we do justice to many of these seniors in the first place by putting them into a reverse mortgage?

    The positive points on the FA ruling is we have different markets to go after. We have the opportunity to start marketing our product as just not a need based vehicle but a true retirement tool. Not to mention a great financial planning tool for many years to come.

    Let us also not forget the capital markets! Because of this move the HECM may now be around for a long time to come. Before FA, there were many concerns in the GNMA security world.

    That is my take on it folks, for what it is worth. Everyone make it a great weekend.

    John A. Smaldone

  • It will take years for Walter to recover through reverse mortgage profits 1) the write off of all $138.8 million of reverse mortgage goodwill and 2) the massive settlement of $29.6 million for alleged legal violations. One hurdle Walter must overcome is proving that its executive management is sufficiently committed to doing that. Certainly its prior choice of the RMS executive team did not reflect its ability to select the right personnel to get that done.

    Being required to write off goodwill, the way Walter had to do says that Walter’s auditors had no confidence that Walter could generate the profits from its turn key reverse mortgage acquisitions to generate sufficient profits in time to retain any value for goodwill for its acquisition of RMS and through RMS Security One.

    With Generation gone, why doesn’t Walter go after Colin Cushman for its top position at RMS? The Walter executive team needs to become less reactive and much more proactive in overseeing RMS otherwise RMS could keep digging its own demise.from a recovery point of view.

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