REQUIRED READING: The subservicing sector has seen a significant volume of activity over the past few years. The reverse mortgage sector, despite declining property values and other concerns affecting both the industry and economy, has managed to remain one of the brighter spots within mortgage banking. In concept, one could imagine that subservicing for the reverse mortgage sector would be a lucrative niche within a niche.
In reality, however, it hasn't quite happened. While a few companies have staked a claim here, the reverse mortgage sector is mostly unexplored territory for subservicers.
For Darryl Hicks, vice president of communications for the National Reverse Mortgage Lenders Association, part of the problem regarding the lack of subservicing activity in the sector can be blamed on the nature of the sector.
‘To begin with, there are not a whole lot of people servicing reverse mortgages,’ he explains. ‘This is still a small sector. We're not a large industry, and the pace of origination flattened off in the past two years, so there is not a growing need for subservicing.’
Nigel Brazier, president of Plano, Texas-based Acqura Loan Servicing, concurs.
‘I haven't seen any subservicing there,’ he says of the reverse mortgage sector. ‘Given the condition of the traditional mortgages in today's market, there is enough to keep us busy. We're focusing on traditional, subprime, FHA- and government-sponsored enterprise-oriented product.’
But that's not to say that the sector is totally absent of subservicers.
‘Most originators reach out to companies like us because they do not know how to build reverse mortgage technology,’ explains Kevin Girardi, chief information officer with Reverse Mortgage Solutions, based in Spring, Texas. ‘This is kind of its own anomaly. Some people try to merge forward mortgage technology into this product and found it did not work.’
Girardi admits that grasping the unique attributes of reverse mortgages can require a ‘steep learning curve,’ adding that the concept involves letting go of traditional origination protocol. ‘People keep trying to relate to forward mortgages, but that is very difficult,’ he says. ‘You're paying seniors instead of them paying you.’
Another reverse mortgage subservicer is Celink, based in Lansing, Mich. According to CEO John LaRose, 90% of its business comes from reverse mortgages.
However, LaRose acknowledges that the sector has not been totally immune from the tumult that rocked the rest of the industry. ‘Business is good, but I would not classify it as great,’ he admits. ‘We've had a lot fewer clients than in 2007, and that is a direct result of Wall Street taking a step back. Assuming they'll come back in and build a secondary market, I suspect business will increase.’
LaRose states that the near future has the potential for his brand of subservicing operation. ‘The Department of Housing and Urban Development projects another flat year in 2010, but I tend to disagree,’ he says. ‘The Ginnie Mae home equity conversion mortgage-backed securities are going to improve, and there will be more issuers in 2010. Some growth might have an impact.'
Gordon Albrecht, executive vice president and chief strategy officer at FCI Lender Services Inc., in Anaheim Hills, Calif., believes that more subservicers could begin streaming into the sector.
‘Reverse lending, as presented to us, has a reasonable servicing fee built in by the originator,’ he says. ‘Then, we do the servicing at our lower subservicing fee. The originator gets a spread for income, we get our standard subservicing fee and the borrower gets professional servicing statements each month. It looks like it should work for everyone involved.’
Of course, this is predicated on the continued growth of the sector.
‘There is a big issue with the current market,’ says Girardi. ‘People were considering it, but property values went down, and borrowers are eligible for a lot less money. If you're living in a house and got a reverse mortgage, you probably did well three or four years ago. If you get one now, you'll get a lot less.’
Hicks is also uncertain of whether this situation will change in the near future. ‘If the business continues to grow, we can get more subservicers,’ he says. ‘But we're nowhere close to a regular mortgage market in terms of volume.’