How might investors view reverse mortgages in 2025 and beyond?

Major reverse mortgage companies like Finance of America (FOA) and Ellington Financial — the parent of reverse lender Longbridge Financial — recently released their third-quarter 2024 earnings results, with FOA in particular posting strong numbers while Ellington continues to tout the versatility of Longbridge in its overall portfolio.

Recently, HousingWire’s Reverse Mortgage Daily (RMD) sat down with UBS analyst Douglas Harter to take a closer look at investors’ attitudes toward these companies in the here and now.

When looking ahead at the future, there are some unsettled questions regarding the outlook 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 issues shaping future response

When asked about the 2022 collapse of top-five reverse mortgage lender Reverse Mortgage Funding (RMF) and the resulting liquidity crisis that ensued, Harter was asked whether something like that can trigger either investor pessimism regarding the fact that it happened, or confidence considering the government’s response to it.

Ultimately it depends, he explained.

“I think, initially, it leans toward concern over the near-term impact on liquidity and potential contagion to other areas,” he said. “There’s also the question of how existing players will be impacted. But as these issues are addressed and potential government actions like HMBS 2.0 improve industry dynamics, it can create new opportunities.”

That’s because an event like this could signal how an entity like Ginnie Mae could approach working with other liquidity providers, which could be a source of optimism. But investors need time to absorb and assess the impacts.

“These kinds of questions tend to arise after the initial aftermath, once the market begins to see how stakeholders and investors are responding,” he said.

But it’s also likely that investors could see what the companies are seeing, and that is additional product viability for the lenders’ proprietary reverse mortgage offerings. Both FOA and Ellington emphasized the strength of their proprietary products in the recent earnings calls.

“When looking at the proprietary side, there’s clear potential for growth and efficiency, especially with jumbo loans,” Harter said. “If you can reduce origination costs through scale, that can be beneficial. This fits well with Ellington’s strategy, as they’re a balance sheet-heavy business focused on creating long-term investments to support their dividend.”

There’s more potential volatility at FOA, since that company aims “to be less capital-intensive than Longbridge or Ellington,” Harter said. “This has historically caused more fluctuations in their financial reports, with market adjustments playing a significant role—positive this quarter, but negative in previous ones.”

But as FOA’s originations business scales, that volatility could diminish, he said. The key will lie in the company’s ability to find long-term investors.

Impending changes

Since a large segment of the reverse mortgage industry is intertwined with the Federal Housing Administration (FHA)’s HECM program, the impending transfer of power in the federal government does have some implications on the viability of the space depending on the kind of policy the next HUD secretary, Ginnie Mae president or FHA commissioner will choose to pursue.

As of now, Ginnie Mae is pursuing a final term sheet for HMBS 2.0, a complementary reverse mortgage securities program first telegraphed by Ginnie Mae at the beginning of this year. An initial term sheet was released by Ginnie Mae this summer, with a final term sheet expected sometime in the near future according to a timeline offered by Acting Ginnie Mae President Sam Valverde in an interview with RMD.

But with the impending change of administrations, and the insistence from some congressional allies of President-elect Donald Trump to cease policymaking activity until the transfer of power takes place, it remains to be seen how things will progress. As far as investors are concerned, HMBS 2.0 and proprietary product performance could play a role in their outlooks on the reverse mortgage business.

“I think the resolution of HMBS 2.0, and assessing the potential ongoing balance sheet or liquidity benefits that might come from it, is definitely something people are watching,” he said. “As we discussed earlier, the success of proprietary products or the HomeSafe Second are other key areas of interest. People are looking for indications of whether the market can grow. Of course, interest rates will fluctuate, which is largely beyond anyone’s control.”

As for whether or not investors have a stake in the specifics of the actual transfer of power, it does not command a lot of time in the conversations Harter has with investors, he said.

“It doesn’t seem like people have a strong view yet on what might actually change,” he explained. “On the forward side, there’s more focus on considering the potential impact of ending conservatorship for Fannie Mae and Freddie Mac. That seems to be where the current conversations are centered.

“No one really knows what that would mean yet, or how much can be accomplished with or without Congress, and what could get through Congress. It’s definitely on people’s minds, but there isn’t a clear sense yet of what it would look like.”