Top-three reverse mortgage industry lender and servicer Longbridge Financial has acquired a substantial portfolio of reverse mortgage servicing rights (MSRs) from bankrupt industry lender Reverse Mortgage Funding. This is according to court documents reviewed by RMD and a statement from Longbridge.
According to the court order issued in the U.S. Bankruptcy Court for the District of Delaware, Judge Mary Walrath approved the “sale of certain of debtor Reverse Mortgage Funding LLC’s mortgage servicing rights to Longbridge Financial, LLC free and clear of liens, claims, encumbrances, and other interests.” Walrath also approved the “assumption and assignment of certain related executory contracts,” as well as the “settlement of claims and […] granting related relief.”
Following the bankruptcy of RMF in late 2022, Longbridge was named as a potential buyer of certain RMF MSR assets, but the deal did not initially materialize. Shortly thereafter, Ginnie Mae seized the lender’s servicing operation, a move that required new staffing and operations resources for the organization.
“We did run a marketing process for the servicing rights,” said Jason Hufendick, an attorney representing RMF in the court hearing regarding the sale late last month. “There were no willing bidders. The way U.S. Bank [the indenture trustee] was able to attract a bidder like Longbridge to step in was offering greater servicing fees than were available to the debtors.”
The deal as agreed upon in court is defined as a “servicing succession transaction” that would “assure continuous servicing of borrowers’ mortgage loans and provide a potential avenue to recover on servicing-related claims arising from and after the transfer of servicing,” the agreement said.
“This motion does two things,” Hufendick told Judge Walrath in court. “It will first assume and assign certain servicing rights to Longbridge Financial […] and it will also resolve all claims against the debtor’s estate that may be asserted by the indenture trustee.”
Representatives for RMF currently overseeing the company’s liquidation process declined to comment on the transaction. Longbridge confirmed the deal.
“On July 1, with the approval of the bankruptcy court and various investors, Longbridge took over as servicer on over $2 billion of UPB in private label securitizations originally sponsored and serviced by Reverse Mortgage Funding,” said Richard Burke, SVP head of servicing, vendor risk management and post closing at Longbridge. “Longbridge looks forward to working with the impacted borrowers by providing the same high-quality experience as received by other Longbridge servicing clients, as well as with the Trustee and investors in the various bonds to ensure that bondholders continue to receive their promised cash flow.”
Earlier this year, it was indicated by Larry Penn — CEO of Longbridge parent company Ellington Financial — that RMF MSRs represented a potentially attractive future acquisition opportunity.
“It’s a very different MSR from the MSR that Longbridge currently owns,” Penn said in a February earnings call. “It’s a much older MSR so it has different benefits and risks. But that could be a very substantial acquisition, and potentially not even require that much capital.”
A few months later in a subsequent earnings call, Ellington leaders described how the company acquired an additional portfolio of distressed Home Equity Conversion Mortgage (HECM) loans, which Penn later said was also sourced from RMF.
“This was related to a bankruptcy that occurred late last year in the reverse mortgage space,” Penn said in May. “And actually, those loans were financed. We actually bought that package, that was essentially seized from the lender. And I think there could absolutely be more of that product coming out, especially from that bankruptcy in particular, because all the product has not come out at this point. So you could see us add to that.”
Shortly after the bankruptcy, Longbridge reportedly expressed interest in acquiring the RMF portfolio, but an acquisition did not materialize prior to Ginnie Mae’s seizing of the portfolio at that point.
After ceasing originations in mid-November 2022, RMF filed for Chapter 11 bankruptcy protection a week later due to adverse trends in the wider reverse mortgage business, the company said at the time.
Nearly 500 employees were impacted by a layoff that happened in conjunction with the bankruptcy filing, according to court documents reviewed by RMD. However, several former employees ended up landing at other major players in the industry, including Fairway Independent Mortgage, HighTechLending and Longbridge itself.
“I’m sure you saw the bankruptcy towards the end of last year,” Penn said in February. “I don’t know if you’d call this organic or inorganic, but we were able to pick up a lot of producers, loan officers etc., in the wake of that bankruptcy without having to do anything in terms of an outright acquisition and potentially paying a premium.”
Editor’s note: This story has been updated with a slight clarification in Longbridge Financial’s statement on the transaction.