In despicable market, Liberty’s parent company remains bullish on reverse mortgages

Ocwen Financial Corporation, parent company of PHH Mortgage Corp. and leading reverse mortgage lender Liberty Reverse Mortgage, increased its profitability slightly, but acknowledged that the mortgage business as a whole is in the midst of a challenging operating environment.

This extends to the reverse mortgage business, although the company remains generally optimistic about the outlook for reverse mortgages, due to demographic potential and the resilience of U.S. home price appreciation levels (HPA ). The company also said this week that it would consolidate its forward and reverse operating platforms for both origination and maintenance.

Outlook and resilience of reverse mortgages, consolidation of forward/reverse platforms

Ocwen CEO Glen Messina said the company aims to become leaner and more nimble in a tough market, and that includes the company’s reverse mortgage business.

“We expect low origination volume in the fourth quarter and are committed to further adjusting capacity and spending as needed going forward,” Messina said during the third quarter earnings call this week. “In addition, we are consolidating our forward and reverse operating platforms in both origination and service. We are focused on leveraging a single back-end platform and process for activities that are common both forward and backward.

Messina explained that such consolidation will result in “scale advantages” for both companies.

“We are one of the few competitors in the reverse space that has the ability to execute this strategy,” he said. “Early results are promising and we expect further benefits through 2023 as we continue to refine and optimize our approach.”

Messina also noted that Liberty’s status as an end-to-end reverse mortgage provider, from origination to management, has the potential to enable new reverse partnerships in the future, but did not. gave more details.

Reverse origination, profitability service

According to Ocwen’s chief financial officer, Sean O’Neil, the company reported lower profits in reverse service and a slight loss on reverse origination in the third quarter.

“While the long-term reverse mortgage opportunity remains attractive primarily due to borrower demographics as well as the behavior of a reverse mortgage servicer right (MSR) being counter-cyclical when house prices have fallen, it continues to have the same short-term headwinds that we introduced last quarter,” he said. “First, mortgage rates continue to rise. This reduces HECM refinancing opportunities. And as rates go up, the amount of money a reverse borrower can get out of a property goes down.

That reduced the appeal of proprietary reverse mortgages and non-Ginnie Mae HECMs to investors, he said, which is reflected in the third-quarter pretax loss statement. The reverse service remains profitable, but at a reduced level.

“[This is because] we have incurred some costs as we integrate the business into our advanced services business,” O’Neil said. “Volumes in the reverse service business remained relatively flat quarter-over-quarter, but strong growth is indicated for the first quarter of 2023 based on our pipeline today. Going forward, we We will integrate both reverse origination and reverse service business into our respective futures business to ensure that we maximize productivity.

Reverse Mortgage Allocation Challenges, Interest in Term Mortgage Activity

In a Q&A session, Messina addressed specific challenges facing the reverse mortgage business as well as emerging opportunities.

“In the origins, I would say that one of the challenges that the reverse industry has always faced was product distribution,” Messina said. “By integrating the futures platform and in particular the sales teams that we have in charge of the mail order and wholesale channels, we get, I think, a huge distribution leverage by distributing this product to all of our customers. futures who are interested in selling the product, as well as our existing reverse customers.

Messina mentioned a high level of interest in the reverse among attendees at the MBA’s annual event in Nashville.

“I could tell you, coming back from the MBA conference we were at just two weeks ago, [we saw] a lot of interest from our futures customers for the reverse product,” said Messina. “We have a group called Liberty Academy, which trains people to sell the reverse product. And again, having the ability to buy the asset as well as maintain or sub-maintain it, as the case may be, really allows us to be able [to provide] an end-to-end solution for transfer providers looking to enter the reverse space. »

Meeting the needs of the term mortgage industry and providing more direct pathways for term mortgage practitioners to enter the reverse space has long been a priority for the reverse mortgage industry to expand the size of the industry, but there is no single consensus among integrated reverse mortgage professionals on how this goal might be achieved.

According to HECM approval data compiled by Reverse Market Insight (RMI), Liberty Reverse Mortgage is currently the sixth largest reverse mortgage lender in the country with 4,182 loans in the 12 months ending October 2022.

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