Liberty Parent Touts ‘Very Profitable’ Reverse Mortgage Business as Fortunes Improve

Ocwen Financial Corporation (NYSE: OCN), parent company of top 5 reverse mortgage lender Liberty Reverse Mortgage, announced in an earnings call on Tuesday that it has posted its fourth consecutive quarter of positive adjusted pretax income as it has aggressively sought to return to profitability. In the midst of that announcement, the company also touted the success it is seeing in its reverse mortgage business.

As the company continues to implement practices to further stabilize its financial position, Ocwen CEO Glen Messina related optimism when discussing the opportunities presented by the reverse mortgage product category, especially as the baby boomer generation continues to mature and older Americans maintain a larger share of collective home equity.

Business growth, and the role of reverse mortgages

Speaking about some of the initiatives undertaken by the organization in order to expand its financial standing, the origination platform for both forward and reverse mortgages has led to optimism and the possibility of expanding its base of clients and originations, Messina said in the earnings call.

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“We’ve […] built a diverse multi-channel origination platform in both forward and reverse mortgages that’s grown [its] total volume by 115% over the past year,” Messina shared. “And, we think we’ve got room for a product channel and client base expansion in originations. There are several industry trends and tailwinds that we believe we’re well-positioned to benefit from – in both performing reverse originations as well as special servicing – and these trends are really driven by interest rates, favorable first-time homebuyer and retiree demographics and expiring COVID plans.”

Additionally, the trends being seen on the reverse side of the business further illustrate the potential opportunity for Ocwen to grow through the business channel provided by Liberty, as favorable demographics and the housing wealth of seniors continues to indicate potential for the larger organization, Messina added.

“About the reverse mortgage opportunity: we do expect the maturing baby boomer generation will create potential growth opportunities for our very profitable reverse mortgage business,” Messina said. “The National Reverse Mortgage Lenders Association (NRMLA) reports that seniors have $7.7 trillion of untapped home equity to support their retirement needs, and unfortunately many of these seniors do not have sufficient savings in cash flow for their retirement.”

Reverse mortgage profitability as a path to new opportunity

At the end of the earnings call in a question and answer portion, one caller asked Messina to “drill down” further on some of the near- and long-term opportunities that the company foresees, and Messina decided to devote some of his answer to the performance of Liberty Reverse Mortgage.

“I’d say on the long-term side, [given] the whole demographics around the aging population in the United States, we’ve got a great little reverse mortgage business,” Messina said. “We’re one of the top originators and servicers in our reverse mortgage space. Liberty Reverse Mortgage is our brand. We go to market with them. Again, that’s an area where there’s lots of untapped equity in seniors’ homes.”

Part of the reasoning behind Messina’s bullishness about Liberty’s performance stems from the cash flow situations of many American seniors, but the presence of Liberty in the market operating at a high level of performance could mean positive things for Ocwen’s reverse mortgage business, he says.

“[U]nfortunately for a lot of seniors, their cash flow doesn’t really match their expenditures in retirement,” Messina said. “So, our reverse mortgage [offering] is a good product to help [seniors in that situation]. So, that’s how I see the environment going forward. Again, I think it’s balanced both near-term and long-term.”

Ocwen’s confidence in Liberty

In April of this year, Ocwen was notified by the NYSE that the average per share trading price of its common stock was below the exchange’s minimum average share price rule, which could’ve potentially led to the stock’s delisting without corrective action within a period of six months. Over the course of that time, however, Ocwen’s share price rose from a low of $4.72 per share on April 3 to a high of $28.72 on October 15. As of Tuesday, the share price has settled to its current level of $26.71 in late day trading.

Even in the midst of some difficulty in its aim to return to larger profitability, Ocwen emphasized the health of its reverse mortgage business earlier this year while its situation required more improvement. To facilitate success for Liberty, the company was rebranded to its current name from its previous “Liberty Home Equity Solutions” moniker, and the company began operating as a division of Ocwen’s recently-acquired PHH Mortgage Corporation in March.

Ocwen announced its intention to acquire PHH Mortgage Corporation in February of 2018, and the acquisition was finalized in early October 2018 in a deal valued at $360 million-in-cash. The combining of the companies was expected to reduce servicing and origination costs, as well as lower fixed costs, as redundant corporate costs would be cut and consolidated.

In the summer of 2019, remaining details of the acquisition were finalized, consolidating the brands that Ocwen’s mortgage services would operate under. The following month, Liberty announced the availability of EquityIQ, its own proprietary reverse mortgage product designed to serve homes with values that may be higher than the Federal Housing Administration (FHA)-enforced lending limit which is currently $765,600.

While the availability of EquityIQ was temporarily halted due to secondary markets volatility caused by the pandemic, the product resumed availability by the summer.

Based on recent Home Equity Conversion Mortgage (HECM) endorsement data compiled by Reverse Market Insight (RMI), Liberty Reverse Mortgage is the fourth largest reverse mortgage lender in the country, recording 3,092 endorsements over the 12-month period ending in September, 2020.

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