Major reverse mortgage companies such as American Finance (FOA) and Ellington money – the parent of the reverse loan Longbridge Financial share price – have just released their third quarter 2024 results, with FOA in particular posting strong numbers while Ellington continues to emphasize Longbridge’s flexibility across its portfolio.
Recently, HousingWireReverse Mortgage Daily (RMD) sat down too UBS analyst Douglas Harter to take a closer look at investors’ attitudes toward these companies here and now.
Looking ahead to the future, there are indirect questions about the appearance of certain details within the Home Equity Conversion Mortgage (HECM) program, as well as other recent priorities in both the public and private sectors.
Past problems shape the future answer
When asked about the 2022 fall of the top five returning property lenders Reverse Mortgage Funding (RMF) and the resulting liquidity crisis, Harter was asked if something like that would cause investors to doubt the fact that it happened, or confidence given the government’s response to it.
Ultimately it depends, he explained.
“I think, at first, it comes down to concerns about the near-term impact of funding and possible contagion to other areas,” he said. “There is also the question of how the existing players will be affected. But as these issues are addressed and potential government actions such as HMBS 2.0 improve industry flexibility, they can create new opportunities.”
That’s because an event like this can show how the business is doing Ginny Mae may be close to working with other financial providers, which could be a source of hope. But investors need time to discover and evaluate the implications.
“These types of questions usually come up after the first results, when the market starts to see how stakeholders and investors are responding,” he said.
But it’s also possible that investors see what the companies see, and that is the increased performance of the product of the lenders’ revolving credit offerings. Both FOA and Ellington emphasized the strength of their proprietary products in recent earnings calls.
“If you look at the ownership side, there is clear potential for growth and efficiency, especially with jumbo loans,” Harter said. “If you can reduce start-up costs by using scale, that can be beneficial. This fits well with Ellington’s strategy, as they are a heavy-hitting business focused on creating long-term investments to support their profitability.”
There’s a lot of potential volatility at FOA, as that company aims to “spend less money than Longbridge or Ellington,” Harter said. “This has historically caused significant volatility in their financial reports, as market changes play a significant role – positive this quarter, but negative in the past.”
But as FOA’s business base balances out, that volatility could lessen, he said. The key will be in the company’s ability to find long-term investors.
Changes to come
Since most of the reverse mortgage industry is affiliated with Federal Housing Administration The HECM (FHA) program, the upcoming devolution of power to the federal government has some implications for the operation of the space depending on what kind of policy the next HUD secretary, president Ginnie Mae or FHA commissioner will choose to pursue.
To this end, Ginnie Mae is pursuing the final sheet of HMBS 2.0, a hybrid system of reverse mortgages that Ginnie Mae began televising earlier this year. The first term sheet was issued by Ginnie Mae this summer, and the final sheet is expected in the near future according to the timeline provided by Ginnie Mae Acting President Sam Valverde in an interview with RMD.
But with the upcoming administration change, and the insistence of some allies of President-elect Donald Trump to hold off on policymaking until the transition takes place, it remains to be seen how things will proceed. For investors, HMBS 2.0 and the performance of the proprietary product can contribute to their view of the reverse mortgage business.
“I think the resolution of HMBS 2.0, and exploring the potential ongoing balance or liquidity benefits that could come from it, is definitely something that people are looking at,” he said. “As we discussed earlier, the success of proprietary products or HomeSafe Second are some of the key interests. People are looking for clues as to whether the market can grow. Yes, interest rates will fluctuate, which is very much beyond anyone’s control.”
As for whether investors have a role in the actual transfer of power, it doesn’t take much time in the discussions Harter has with investors, he said.
“It doesn’t seem like people don’t have a strong opinion about what could really change,” he explained. “On the front end, there is a lot of focus on considering the potential impact of ending savings Fannie Mae again Freddie Mac. That seems to be where the current discussions are focused.
“No one really knows what that will mean yet, or how much can be accomplished with or without Congress, and what can go through Congress. It’s definitely on people’s minds, but it’s not clear yet what it would look like.”
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