Reverse Mortgages meet the Big Firms & Banks

SAN FRANCISCO — After years of being heralded as the next big thing in banking, reverse mortgages have come into their own, morphing from a mom-and-pop industry to big business in just the last six months.

Genworth Financial Inc. of Richmond, Va., signed a deal in July to acquire the No. 4 player in the reverse-mortgage industry, Liberty Reverse Mortgage Inc. of Rancho Cordova, Calif. A month earlier, Bank of America Corp. acquired the No. 3 player in the field, the reverse-mortgage business of Seattle Mortgage Co.And in May, the embattled Countrywide Financial Corp. of Calabasas, Calif., the nation’s top mortgage originator, entered the market with its first reverse-mortgage product.

The moment is right for big companies to discover reverse mortgages because of the ever-growing population of baby boomer retirees, according to industry executives.

“It’s the right opportunity, right time given our core mission,” said Ron Cordes, chairman of AssetMark Investment Services Inc., a Pleasant Hill, Calif.-based subsidiary of Genworth. “From accumulation to distribution, that’s the big theme at Genworth.”

But some industry observers believe that big banks are motivated by more than just making up for lost revenue.

“Today the mortgage origination volumes are down, so [pushing reverse mortgages] may be a way to keep origination volumes up there,” said James Schutz, senior vice president and banking analyst for Sterne Agee & Leach Inc. of Birmingham, Ala.

The downturn in the mortgage industry in general — and the precipitous collapse of the subprime-mortgage industry in particular — served as a wake-up call for the major players, according to observers.

“Up until 18 months ago, when the mortgage market started turning south, [the big national players] didn’t understand what was going on in the reverse-mortgage industry,” said Jim Mahoney, chairman of Financial Freedom Senior Funding Corp., which originated more than $5 billion of reverse mortgages in 2006.

Written by charles dennis on September 5th, 2007 with comments disabled.
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