A mortgage origination market ever on the lookout for revenue opportunities is especially eager to identify new areas for profit in today’s slower environment, which is why private investors seem to be salivating about the growing — and aging — reverse-mortgage sector.
A regional trade meeting in Atlanta last week attracted more than 400 participants, a roomful of exhibitors and an intriguing handful of Wall Street representatives who mostly kept a low profile at the event as they eyed new securitization sources.
A sure sign of pending growth, from a previously sleepy market segment measuring only .03 percent of the “forward” mortgage loans last year, was the presence of representatives from UBS, Bear Stearns, Goldman Sachs and Credit Suisse/First Boston (CSFB). They were conducting quiet meetings at the show with reverse-mortgage originators, who could become prospective clients of these secondary market aggregators and investors, if and when the numbers add up.
To date, most reverse mortgages have been FHA-insured, and Fannie Mae has provided the secondary market for them through its Home Equity Conversion Mortgage (HECMs), although Ginnie Mae is developing an MBS program to expand the investor base.
Reverse-mortgage lenders originated 76,276 HECMs in fiscal year 2006, up 77 percent from the level in fiscal 2005, according to data reported by the Department of Housing and Urban Development. Though there are many restrictions and limitations in a reverse-mortgage transaction, the deal generally enables a homeowner age 62 or more to receive monthly payments from the equity in their properties with no repayment required until they move out, sell or die.
With the leading edge of nearly 80 million baby boomers set to hit the entry-age threshold for a reverse mortgage next year, it’s no wonder many mortgage market professionals are eyeing this segment with great interest. And in the modern market, no serious success can be achieved without the deep pockets supplied by Wall Street.
“We’re probably looking at 50 percent annual growth” in the years to come, forecasts Brett Kirkpatrick of Mortgage Financial Inc., a reverse-mortgage originator in Tewksbury, Mass.
Not for everyone
But this market niche is not for everyone, insists Peter Bell, president of the National Reverse Mortgage Lenders Association in Washington, D.C., which sponsored the regional conference in Atlanta and plans a national conclave in San Diego in November.
“This type of lending requires a sea change in mentality,” says Bell. For one thing, “the closing time [on a loan] can be six months or longer,” he notes, owing to regulations intended to ensure that senior borrowers fully understand, qualify for and agree to terms of the transaction.
Nevertheless, private participation and growth is inevitable.
The reverse field is in a “state of infancy right now,” says Charles Gardner, director, Atlanta Home Ownership Center and HUD’s regional office there. “All signs indicate that it will become as prevalent as any other [home finance] product,” says Gardner. “It’s a surging market and [government] will not have a prominent role indefinitely, and we think that’s OK.”
But new entrants will have to learn the ropes and tread lightly in this specialty market, according to Paul Martin, business development manager, reverse-mortgage division, Security Title Guaranty Co., in Denver.
“No company wants a black eye (hurting) seniors,” says Martin, who recently joined the firm after helping to expand the reverse-mortgage group at Wells Fargo Mortgage Co.