Financial Freedom, the nation’s largest reverse-mortgage lender when owned by IndyMac Bank prior to the recession, is exiting the business after several years of steady decline.
The lender, now a subsidiary of Pasadena savings and loan OneWest Bank, which acquired IndyMac’s assets in 2008, plans to end both wholesale and retail origination March 31 but will continue to service its existing portfolio, according to an email circulated among employees last week.
Financial Freedom was considered an industry pioneer and a prized asset, but has failed to establish much of a foothold under OneWest as continued housing woes have shrunk demand for loans. This year, the division ranks No. 13 among reverse-mortgage lenders nationwide.
“While Freedom is not the industry giant they once were, they have played a huge role in this industry in the past, helping to make it what it is today,” said Topher Thiessen, co-founder of industry research firm Reverse Market Insight Inc. in Aliso Viejo. “I don’t want to understate the significance of OneWest deciding to exit the reverse-mortgage business.”
In fact, Financial Freedom is the latest in a series of major lenders to abandon the market in recent months.
Reverse mortgages allow homeowners at least 62 years of age to borrow against the equity in their homes. However, since lenders recoup their money through sales of the borrowers’ homes after they die or leave the properties, the industry gets squeezed when home prices drop, making the lending business less profitable.
What’s more, depressed home prices have discouraged owners from even seeking reverse mortgages, said Peter Miller, who maintains industry blog BestReverseMortgage.com.
“This business of declining equity has really impacted interest in reverse mortgages,” he said.
Other departures
Last month, Bank of America Home Loans, the banking giant’s Calabasas-based mortgage lending unit, announced it was exiting the reverse-mortgage business in order to reallocate resources to loan modification efforts and standard mortgage origination. Shortly thereafter, Wells Fargo & Co. closed its wholesale reverse-mortgage origination division, though its retail channel, the nation’s largest, remains active.
Financial Freedom Chief Executive Michelle Minier declined to comment, but
in an e-mail to employees she said the decision was made based on OneWest management’s “desire to focus on the bank’s core businesses.”
It is unclear whether the move will result in layoffs or if the unit’s servicing operations will continue to function as a separate entity from OneWest. The lender would not say how many employees it has, but under IndyMac the payroll stood at about 800 workers during the housing boom.
For years, Financial Freedom ranked among the industry’s most respected
and influential entities. In 1999, it introduced the industry’s first private-sector reverse mortgage that was not insured by the federal government.
In 2004, it was acquired by IndyMac, then one of the nation’s largest independent mortgage lenders. Financial Freedom was the largest reverse-mortgage lender during the height of the housing market, originating at its peak in 2007 nearly 43,000 loans totaling $3.9 billion, according to Reverse Market Insight.
Even as IndyMac ran into trouble in early 2008, Financial Freedom kept humming, earning nearly $2 million in profit during the first quarter. A number of analysts, including Frederick Cannon of New York-based Keefe Bruyette & Woods, cited the reverse-mortgage unit as one of the few attractive assets IndyMac had left after its mortgage business collapsed.
In IndyMac’s desperate final days, Chief Executive Michael Perry said the institution was considering selling Financial Freedom, which he expected to fetch $500 million.
IndyMac was seized in July 2008, however, leaving Financial Freedom in a state of limbo. IndyMac’s assets were run in a perfunctory manner by regulators for eight months before a team of investors acquired them and launched OneWest.
Since then, Financial Freedom has failed to reestablish its dominant position in the market. Loan volume slipped to 14,240 in 2009 and just 3,314 in 2010, placing it seventh among the top U.S. reverse-mortgage lenders. This year, it fell out of the top 10 entirely.
“Over the years, particularly after the failure of IndyMac Bank and the fallout associated with that, (Financial Freedom) stayed in the wholesale side of the business but really did not grow it,” said Jeffrey Taylor, a reverse-mortgage banking consultant and the former head of Wells Fargo’s reverse-mortgage retail origination division. “They were pioneers, but that was then and this is now.”
