The Bank of New York Mellon is planning to enter the reverse mortgage business.
Through its Home Equity Retirement Solutions program, which is expected to be implemented before the end of 2014, the bank will purchase, securitize and service reverse mortgages and offer seniors cash to supplement their retirement plans.
The program will also provide advisory services to brokers, financial advisors, and asset managers about how a reverse mortgage is a responsible lending approach for a retirement portfolio.
"Many retirees face a significant financial shortfall. We view the funds generated by suitable reverse mortgages as an additional fixed-income component of retirement portfolios, an important part of retirement planning that complements other aspects of the plan," Michael Gordon, managing director of non-traditional solutions and special situations for BNY Mellon Investment Management, said in an interview with American Banker.
Gordon believes there is a "substantial market need" for this type of program. He noted that many actions have taken place in the last couple of years to support the reverse mortgage business, such as the passage of the Reverse Mortgage Stabilization Act in 2013 and subsequent mortgagee letters issued by the Department of Housing and Urban Development.
BNY Mellon will offer reverse mortgages through a variety of distribution parties, including brokers and fee-based advisors. When originators close their loans, BNY Mellon will re-underwrite them to determine if they are suitable for securitization.
"We think this is a really positive, from a socially responsibility perspective, program to get people into more sustainable retirement plans with sustainable homeownership so they can age in place," Gordon said.