Exploring 2019’s Reverse Mortgage Lender Exits

The long arm of changes to principal limit factors (PLFs) for Home Equity Conversion Mortgages (HECMs) continue to be felt over two years after they were first handed down by the U.S. Department of Housing and Urban Development (HUD). This has resulted in a number of mortgage lenders ceasing their reverse originations entirely in 2019.

According to origination data shared with RMD by Reverse Market Insight, hundreds of non-specialty mortgage lending firms across the country that had at least one HECM origination in 2018 have logged 0 reverse originations in 2019. While the majority of the companies that have apparently exited the reverse mortgage space fall into the category of having logged between 1 and 5 HECM originations in 2018, others logged anywhere from 60 to 80 HECM originations last year before ceasing operations in the reverse mortgage space in 2019.

One such company is Lancaster, Penn.-based Fulton Mortgage Company, which recorded 58 originations in 2018 before abruptly ceasing its reverse mortgage operations. Rob Hironimus, the former head of Fulton’s reverse mortgage division and now the company’s VP and Community Reinvestment Act (CRA) mortgage sales manager, confirmed that the company completely exited the reverse mortgage business in 2018.


PLF cuts and business exit

“Yes we did exit Reverse Mortgages last year, between late summer and early fall,” Hironimus told RMD. “We were finding that it was becoming harder to get loans approved with the industry changes, and this was felt both by the company and our loan officers.”

The reverse mortgage operation at Fulton was relatively small, and the majority of dedicated reverse loan officers managed to find a new home without much incident, Hironimus says.

“The issue was discussed with the team and most of the four loan officers went to companies that were more focused on reverse,” he says. “Everyone left on good terms.”

The decision to exit the reverse mortgage space stemmed largely from the changes to PLFs handed down by HUD in late 2017, stalling loan approvals and contributing to a major drop in reverse-specific business, he said.

“I would say that [the PLF cuts] were a major part [of our decision to close the division],” he says. “We just couldn’t get people approved with the lending limits and financial assessment. Our overall business dropped between 50% to 60% if I recall correctly.”

Other reasons for reverse mortgage exits

One of the other potential reasons that a lender may choose to exit the reverse mortgage industry, particularly if that exiting company is a multi-service lender, could be due to factors affecting the company that don’t necessarily fall under strictly HECM-related issues. One such company, Washington-state based Mortgage Brokers Services, Inc. (MBSI), went out of business entirely in late 2018.

This led MBSI’s reverse-affiliated company, Kiel Mortgage, to migrate its Washington state reverse mortgage operations to Kent, Wash.-based Mortgage Master Service Corporation.

Speaking recently at a hearing on the HECM program held by the House of Representatives’ Financial Services Subcommittee on Housing, Community Development, and Insurance, National Reverse Mortgage Lenders Association (NRMLA) President and CEO Peter Bell attributed some of the industry exits – particularly in terms of major finance organizations – to these kinds of broad changes in the larger mortgage business.

“I think the major banks dropping out of the reverse mortgage business is no different than any major bank dropping out of the mortgage business generally,” Bell said. “The mortgage business has moved over the past several years to be much more dominated by specialty finance companies and nonbank lenders. Our side of the industry is no different than the rest of the industry in that regard.”

In terms of the high-profile reverse mortgage exits observed over the past decade, the reasons for those entities’ exits are not exclusively because of reverse mortgage industry issues, according to Bell.

“The reasons that the major banks, which were MetLife, Wells Fargo and Bank of America, exited the business are different in each case, but they’re for reasons external to their reverse mortgage activity,” Bell said.

Product complexity as a barrier for lenders and borrowers

Another factor playing a role in industry exits could be the complexity of the HECM product leading to reputational risk, according to Laurie Goodman, co-director of the Housing Finance Policy Center and VP at the Urban Institute in Washington, D.C.

“Yes, [lenders] have cut back on both forward programs with FHA and reverse mortgage programs, but I think with reverse mortgage programs, they’ve perceived a great deal of reputational risk in terms of loans to senior borrowers,” Goodman said. “I think you have to realize that the HECM program is enormously complex. If I take out a forward mortgage, I have two choices: I can choose a fixed- or adjustable-rate mortgage, and I can choose a mortgage term of 15- or 30-years, and that’s it.”

In comparison with the plethora of reverse mortgage options including the fixed- or adjustable-rate, lump-sum or line of credit distribution options and different paces at which funds can be withdrawn, the reverse mortgage is much more complex than traditional forward mortgage options, Goodman said.

“This plethora of options makes the product more difficult for the borrower to comprehend, and puts the institution making the loan at more risk,” said Goodman. “I actually think that program simplification – getting rid of some of the less-used options – would make a big difference [in the health of the HECM program].”

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  • This article is disturbing, not because Chris has done a poor job in reporting the facts,on the contrary, what Chris is reporting is for all purposes accurate.

    However, the exiting of these companies and originators did not have to occur. Then I see and hear about the fear banks had and are having by being concerned about their reputation because of the complexity of the reverse mortgage (HECM).

    This is telling me that when the changes have occurred, especially the one in 2017, companies did not change their marketing strategy or emphasize to their originators what they had to do to survive the major change!

    Immediately, companies/lenders should have placed emphasis on their research and marketing programs to rech those senior homeowners that have a great deal of equity in their homes or no debt at all!

    Lack of rigid training programs to reverse mortgage originators have created the fears small community banks and larger ones had in reverse mortgages. They found their customer base was getting false and wrong information about HECM’S, which customers came back directly to the banks and placed the blame right in their laps!!

    We have become lazy, we forgot how to work for the business, how to go after it like Tigers. We also failed to recognized the product was becoming more complex and the only way to overcome that was through rigid on going educational courses. Courses companies should have and should be requiring all of their originators to go through on a daily basis!

    Non of this is Rocket Science my friends, just plain old common sense. Our industry is NOT dead, we have a great deal of potential in it. Making a good living for many is still out there along with a great deal of gratification to go along with it!

    John A. Smaldone

  • The one thing that we know for sure is that HUD has posted the HECMs endorsed for the fiscal year (twelve consecutive months) ended:
    1.) September 30, 2017 of 55,272 which was as of that date the lowest since 2016;
    2.) September 30, 2018 of 48,359 which at that time was the lowest endorsement total since 2005; and
    3.) September 30, 2019 of 31,274 which is the lowest since 2003.

    The percentage loss in endorsements for fiscal 2019 is 35.3%. That is the largest percentage loss in endorsements ever experienced for a fiscal year in the history of the industry.

    There are many anecdotes as to why we see ever lower annual endorsements. One industry leader claims that the October 2, 2017 changes has nothing to do with it. The losses are due to the loss in experienced originators in the last few years.

    Now we see reverse mortgage lenders with little stake in the industry dropping out. Even larger such lenders are dropping out. Yet if the originators are primarily reverse mortgage originators, it would seem they would move to lenders who are better situated to ride out the current endorsement headwinds.

    Then there is the statistics vendor who used to tell us about HMBS info which is now also presenting HECM endorsement information despite of their claims of HECM endorsement data providing poorer quality conclusions and information.

    While the loss of “rigid training programs” may have something to do with it, it seems as if there is an element of truth in each of the differing anecdotes. Like others, I lament that the industry lacks the quality and verifiable data needed to provide more accurate conclusions than we see in stories like the above. BUT we don’t, so the story above provides an important and interesting look at a portion of what is “behind the curtains.”

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