According to HousingWire, Michael McCully of New View Advisors explains that the reverse mortgage industry is experiencing a wave of mergers and acquisitions driven by two fundamental forces. The first is operational efficiency, where companies can save money by consolidating. The second is balance sheet pressure, as lenders become increasingly cautious about their exposure to the reverse mortgage sector.
McCully points to a key structural problem in the reverse mortgage market: the HECM product has basically flatlined over the past several years, creating excess capacity throughout the industry. This means there are more originators and issuers than the market actually needs. He notes that consolidation becomes the natural outcome because the industry functions more efficiently with fewer, larger players handling volume and securities issuance.
The impact of this consolidation is already visible in the shrinking number of major players. According to McCully's analysis, what was once a more competitive landscape is now dominated by just three large HMBS issuers. Companies like Onity have already made the decision to sell their reverse mortgage businesses to larger consolidators like Finance of America, signaling the direction the sector is heading.
Smaller players in this environment face limited options. They either need to sell to one of these larger consolidators, find ways to diversify their product offerings with proprietary reverse mortgages or other home lending products, or they risk going out of business. McCully notes that maintaining the infrastructure required for reverse mortgage servicing and securities issuance becomes economically unsustainable when the overall market isn't growing.
McCully also addresses why traditional forward mortgage lenders haven't rushed into the reverse space despite years of industry efforts to attract them. Forward lenders are more interested in proprietary products and the nonagency market, which offer better growth prospects in the current environment. The reverse mortgage sector remains too niche and unprofitable for most forward lenders to justify the investment and operational complexity involved.
What I am seeing locally here in the Bay Area and across the East Bay is that reverse mortgages remain a specialized product that most brokers and lenders either avoid or handle through third-party specialists. This consolidation trend at the national level reinforces what we're experiencing on the ground, where fewer options mean less competition and potentially less favorable terms for older homeowners looking to access their equity through reverse mortgages.
