When Bank of America and Wells Fargo exited the reverse lending space last year there were concerns that liquidity might dry up, but don't tell that to the sector's “survivors” who are now feasting on all the market share the two banking giants ceded.
Generation Mortgage Co. originated 7,500 reverse mortgages in 2011. “We are picking up market share that was vacated,” said the company's chief executive Jeff Lewis.
“Our numbers aren't down and I don't believe our competitors' numbers are down either,” Lewis told National Mortgage News.
However, it may take a while before originations of FHA-insured home equity conversion mortgages slowed to 4,600 a month in November from 5,800 in August as the agency endorsed the last of the Wells' HECM deals. (Bank of America completed its exit from the reverse business during the summer.)
Lewis expects lenders will fund roughly 60,000 reverse mortgages in 2012, or 5,000 a month. Figures compiled by FHA found that lenders originated 73,100 HECMs in fiscal year 2011, which ended Sept. 30.
“The industry is facing challenges that are dampening production,” Lewis said. Chief among them is FHA's decision to introduce credit underwriting to the reverse mortgage business in an effort to stop “technical” defaults where seniors can't keep up with their homeowners insurance payments or local real estate taxes.
FHA reported nearly 8,000 technical defaults in FY 2011, resulting in insurance claims rising 48% from a year earlier. Technical defaults can lead to foreclosures.
Traditionally, reverse mortgage lending is based solely on the asset value of the house. Later this year, lenders will be required to collect income and expense data, evaluating a senior's financial ability to pay insurance and taxes.
“There has been a perception that the HECM product was only for people without any other financial alternative,” Lewis said. With the introduction of new underwriting criteria, such seniors “may have trouble getting” an FHA-insured reverse mortgage, he said.
In other words, FHA will be serving a higher-quality customer base going forward. Lenders and FHA officials are working on the new underwriting criteria, which likely will be implemented later this year.
One Reverse Mortgage president and chief operating officer Gregg Smith estimates that B of A and Wells Fargo controlled 30% of the retail reverse mortgage market. ORM is the reverse mortgage arm of Quicken Loans, Detroit, the nation's eighth largest forward lender.
ORM's strategy is to target potential bank customers who previously would've obtained credit from Wells or B of A. “That will take time,” Smith told NMN.
He noted that reverse mortgage loan officers at the two banks have the contacts but have been exempt from state-licensing requirements.
To work for independent mortgage banking companies like One Reverse these LOs must pass state licensing tests. Such training and testing could take four to six months before they can start taking calls, the COO said.
One Reverse Mortgage headquartered in San Diego deals directly with its customers through a call center in Detroit.
One of the original founders of ORM in 2001, Smith noted the reverse mortgage unit is continuing to grow. The company originated 4,600 HECM loans in 2011, up from 3,250 in the prior year.
