Six years ago WSFS Financial Corp. sold its reverse mortgage unit as part of an effort to focus more on its core banking business in Delaware.
But it started making the mortgages in its local markets about two years ago, and with its recent purchase of a 51% stake in 1st Reverse Financial Services LLC in Westmont, Ill., the $3.2 billion-asset holding company for Wilmington Savings Fund Society now aims to become a national player in the field.
With the first wave of baby boomers turning 62 this year, Mark A. Turner, WSFS' president and chief executive officer, said now is a good time to take the business nationwide. He sees demand for reverse mortgages growing rapidly in the next few years, potentially providing WSFS with a steady stream of noninterest income.
"You have lots of people reaching their retirement age, and many haven't saved much for their retirement," Mr. Turner said. "On top of that, people are living longer than expected than 20 years ago, and the only substantial wealth they have is in their house. This is a perfect product to allow them to access this wealth, stay in their homes, and help them meet their health and financial needs."
WSFS bought the 51% stake in 1st Reverse from the $63 million-asset Family Federal Savings of Illinois in Cicero. The remaining 49% is owned by 1st Reverse's management team, which will continue to run the company from its Westmont headquarters.
Gregory F. Sobotka, Family Federal's president, said the thrift sold its stake in 1st Reverse because it was "getting too large for an institution our size."
1st Resource was founded in December 2006 and made its first loan in April 2007. It originated $90 million of reverse mortgages in its first year, and its volume is expected to increase significantly as WSFS invests in its expansion, said Ralph E. Rosynek, 1st Reverse's president.
1st Reverse gets most of its business through referrals from other lenders, including community banks. A number of large banks offer reverse mortgages directly (see related story
Smaller banks "don't have the sophistication or the product knowledge to get into this business," Mr. Turner said.
Lenders referring consumers to 1st Reverse get 25% of the origination fee the borrower pays, Mr. Rosynek said.
WSFS is no stranger to the reverse mortgage business. It bought the San Francisco reverse mortgage company Providential Corp. in 1996 and sold it in 2002 to Lehman Bros. because it felt the market was not mature at the time. But the company continued to keep close tabs on the business and in late 2006 started making reverse mortgages locally. Last year it closed roughly 100 of the loans, and it has made 64 of them this year through April.
The addition of 1st Reverse should increase those numbers considerably. Mr. Rosynek said his company is averaging 50 to 60 mortgages a month. He expects that pace to at least double over the next year as it beefs up its marketing.
WSFS likes the business' fee-income potential. On its direct loans, WSFS makes about $5,000 per transaction through fees from the borrower and by selling the loan into secondary markets.
Mr. Turner said he did not know the share of his company's noninterest revenue that derived from reverse mortgage fees. About 35% of WSFS' revenue overall comes from fee income, and the goal is to increase that to about 50% eventually, he said. "Reverse mortgage fees is one way that will help us get there," he said.
Mr. Turner said 1st Resource will probably have modest losses in its first year as a unit of WSFS, but it expects to break even in the second year and turn a profit in the third, he said.
Anna DeSimone, the president of Bankers Advisory in Belmont, Mass., an audit and compliance company for mortgage lenders, said community banks have shied away from offering reverse mortgages directly because the approval process can be cumbersome.
About 90% of these loans are guaranteed by the Federal Housing Administration under its Home Equity Conversion Mortgage insurance. Community banks generally have not sought FHA approval because it involves a load of paperwork and an extra layer of regulation, Ms. DeSimone said.
But with demand for reverse mortgages growing rapidly, she predicted that 80% of all banks will be offering them within the next two to five years.
Rich de Haan, a principal in the insurance and actuarial advisory division of Ernst & Young LLP, said one of the biggest barriers is the education process.
"You're not selling a home to a person between 28 and 35 years old," he said. "You're sitting down with a person who's probably in their late 60s," as well as his or her heirs, to make sure everyone understands how the product works. The fear that this older person may be getting conned can be difficult to overcome, he said. "It's not a surprise to me" that community banks "wouldn't have the appetite or patience for that stuff," he said.
