Poised for its first ever industry IPO, the business of reverse mortgages hits its stride.
Reverse mortgages are on the rebound and expected to grow rapidly in the future. That’s a surprise to no one who follows the industry and demographic trends. Complete Senior found out that Wall Street agrees with that assessment as well and is betting on it.
Reverse Mortgage Funding, a New Jersey-based start-up company on reverse mortgages has raised $230 million from private investors that include hedge funds and wealthy individuals. That’s the first step that will lead to an initial public offering—one of the first publicly traded companies dealing with reverse mortgages.
The sentiment in the industry is that the success of the company that opened in July 2013 could lead to other companies taking their companies public. That makes sense given Wall Street likes to follow a winner.
What’s fueling optimism in the industry that dipped during the Great Recession with the decline in the housing market? It’s the improvement and growing acceptance of reverse mortgages as an effective tool for older Americans to tap the funding resource that’s their home. With 10,000 baby boomers turning 65 every day, that’s a big market in which the reverse mortgage industry can tap. Homeowners 62 and older are eligible for a reverse mortgage, a loan backed by the equity in their homes. The lender isn’t repaid until the home is sold.
The latest numbers we reported show that borrowers took out 20 percent more loans for reverse mortgages in 2013 compared to 2012. That $15.3 billion is still below the record of $30.2 billion in reverse mortgage loans in 2009, showing that a big ceiling remains.
Reverse mortgages are gaining broader acceptance among consumers and financial planners as a smart financial option for funding retirement. Taking out a reverse mortgage loan with a line of credit option gives homeowners access to a portion of their home’s financial equity to use as they see fit. Financial planners are also starting to look at reverse mortgages as a new way to help their clients reduce portfolio spend-down risk.
Analysts say they’ve seen recent growth in important segments that should fuel future growth. That’s the use of using a reverse mortgage as a retirement planning strategy rather than immediate needs for income and cash flow. It will help them with added financial security and help them finance a business opportunity.
Reverse mortgages will also be critical because Americans are living longer and many of those 50+ don’t have enough put away for retirement in their 401(k) and other investments. Social Security alone won’t be enough for many.
Company officials are mum for now about the company going public. Reports indicate that Reverse Mortgage Funding has sold $15 million shares at $15 a share as part of a real estate investment trust. There are a lot of heavyweights on the board, including Bradley Belt, the former executive director of the Pension Benefit Guaranty Corp.
The venture was recently touted in The New York Times who touted Craig Corn, the company’s executive director, and his team ran the reverse mortgage operation at MetLife.
“Mr. Corn and his team are banking on a revival in the reverse mortgage market with the recovery in home prices and the need for baby boomers to find additional income to support them in retirement,” the article said.
The article noted Corn saying that in his efforts to launch the company that many of the investors were interested because of the demographic trends showed there would be a strong demand for reverse mortgages.
“If the housing market was in a free fall, it might have been a different conversation,” Corn told The New York Times. “The demographic story is this is a fast-growing, older American population that is completely unprepared for retirement.”