Public Firms Shine Mild on Reverse Mortgage Earnings as Ahead Dips
There aren’t an abundance of publicly traded companies in the reverse mortgage finance space, however, it’s hard to ignore an emerging narrative that has surfaced after many publicly traded companies – including two that operate in reverse – post their profits for the second Quarterly 2021: Conversely, mortgages are a bright spot.
Both Ocwen Financial and Finance of America Companies – the parent organizations of Liberty Reverse Mortgage and Finance of America Reverse (FAR), respectively – each emphasized that while traditional mortgage business grapples with what the “new normal” will look like after a turbulent year , caused by the COVID-19 coronavirus pandemic, each company’s dedicated reverse mortgage segments are given more weight in presentations that might not have happened if the futures market had run at a higher level.
In other words, this seems like a unique moment for the reverse mortgage industry to watch out for by all stakeholders across the spectrum.
Forward mortgage companies’ earnings declined in the second quarter, as did earnings outlook
A closer look at a number of publicly traded traditional mortgage companies reveals an interesting picture: Lending in general – and, accordingly, mortgage income – is largely declining. Companies like Guild Holdings and LoanDepot saw its loan income decline in the second quarter of 2021, and even a large institution like JPMorgan Chase saw its mortgage fee income decline. The direct lending to consumers at Rocket Mortgage remained essentially unchanged in the second quarter, according to an audit report. (Rocket, then known as Quicken Loans, hastily got out of reverse mortgage business just before the pandemic began in February 2020.)
The wholesale lender Homepoint announced a net loss of 73 million characters of the evening in the second quarter of 2021. Things could get even worse at the start of the third quarter of 2021, but signs of a slowdown in the traditional market have been evident since late last year.
A June report by the Mortgage Bankers Association (MBA) described how independent mortgage lenders and certain mortgage affiliates of Chartered Banks averaged $ 3,361 net income for each loan they took out for the first quarter of 2021, compared to reported earnings of $ 3,361 $ 3,738 per loan in the fourth quarter of 2020.
In addition, the Federal National Mortgage Association’s (FNMA or “Fannie Mae”) quarterly Mortgage Lender Sentiment Survey found a decline in lenders’ profit margin prospects in HousingWire Editor-in-Chief James Kleimann.
Additionally, speakers at the MBA’s Spring Virtual Conference in April warned that lowering mortgage loan profit margins could lead to some difficult conversations between executives and loan officers about LO compensation.
Public companies operating in the opposite direction choose the HECM focus
Ocwen Financial, the parent company of PHH Mortgage Corporation and Liberty Reverse Mortgage, has long recognized its reverse business as a profitable endeavor ahead of an overall recovery and return to overall profitability. Most recently, the company posted a net loss of $ 10.2 million in earnings in the second quarter of 2021, but paid significant lip service to Liberty’s contributions to profitability and its recent acquisition of Reverse Mortgage Solutions (RMS) platform for the reverse – Mortgage Services ab will enable Liberty to operate as an end-to-end reverse mortgage service provider.
“The reverse volume is up 47% year-over-year,” said Glen Messina, CEO of Ocwen Financial, on the conference call. “The profit before tax with reverse origination is on average about six times as high as with futures. And in addition to increasing the total volume of reverses, we are focusing on promoting retail origins, which represent the highest margin in the reverse business. The reverse volume in retail increased by 150% in the first half of the year compared to the previous year. “
Recently released results from Finance of America Companies, which announced their IPO late last year following a merger with a special purpose vehicle (SPAC), resulted in total revenue for the quarter falling by $ 119 million, a 23% loss $ 389 million from the previous quarter, mainly due to lower traditional mortgage income.
However, in the presentation of the results, great attention was paid to the FAR, which made great profits and contributions to profitability for the parent company.
“Our work segment has not been immune to industry dynamics and we have seen revenue declines that are comparable to our peers. In contrast, we have seen significant growth in our reverse, commercial and lending services segments, ”said Patti Cook, CEO of Finance of America, on a conference call Thursday morning. “Both reverse and lender services had record sales for the quarter, and taken together, the growth in sales from these three businesses offset some of our decline in mortgage income.”
Cook explained in the accompanying press release why the reverse segment did not experience the same profitability slumps as the traditional mortgage business in the second quarter.
“What is important is that the reverse business is less correlated to interest rates than the forward mortgage market, and we believe the segment is well positioned to generate strong and sustainable growth,” she said. “Baby boomers are increasingly aging, and our reverse mortgage products allow this population group to use the equity they have accumulated in their homes to fund or supplement their retirement plans.”
It should also be remembered that investment firm Ellington Financial continues to promote its investment in reverse mortgage lender Longbridge Financial, paying particular attention to the profitability of the lender in its portfolio.
A time of change
As is well known, the exit of large banking institutions from the reverse mortgage industry over the past decade has done great damage to both the company’s reputation and visibility. However, the industry should probably take courage from what has happened lately. The very few companies that have their proverbial “hands” in both forward and reverse mortgage business have recently chosen to highlight the performance of reverse over the inferior performance of traditional mortgage, which has a positive effect on reverse mortgages affects.
Of course, that doesn’t mean there aren’t any headwinds with reverse mortgage loans. They are just different. Analysts have rightly pointed out that reverse mortgage refinancing – which some estimates make up 40% of Home Equity Conversion Mortgage (HECM) volume – is currently in a boom, but that doesn’t necessarily bode well for the industry at the moment In terms of continued success.
Some industry participants are split over what the refinancing boom actually means for the future of the reverse mortgage industry, as RMD reports, but many recognize the need to add to the proverbial pie by continuing to serve as many new borrowers as possible. What the industry continues to do with the favorable demographics and mortgage manager confidence that has been seen as always lately remains to be seen.