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Reverse Mortgage Lender Moves Forward

One Reverse Mortgage LLC is expanding its operations, banking on a trend of seniors tapping into the value of their homes.

The San Diego-based business, a unit of Quicken Loans Inc. of Detroit, recently moved into a new office in Sorrento Valley, nearly doubling its space to 14,000 square feet, and has hired about 50 workers in the past year.

“We’re now at nearly 200 people, up from about 150 a year ago, and we’re adding people in all areas, including mortgage bankers, loan underwriters, processors and closers,” said Gregg Smith, ORM’s president and chief operating officer.

The business specializes in reverse mortgages, which have been gaining traction as more folks in their retirement years seek alternative ways for financing, the company said. Only those older than 62 and with equity in their homes can qualify for the product, which is guaranteed by the Federal Housing Administration.

“This is a mainstream loan program that hasn’t made it to Main Street yet,” Smith said. “Our No. 1 challenge is in building greater awareness.”

A National Leader

ORM said it is the top firm in the nation doing reverse mortgages only, and the second largest reverse mortgage lender, based on the most recent ranking by Reverse Mortgage Insight Inc.

The top lender, MetLife Bank, is exiting the business. In December, MetLife announced the sale of the retail bank to GE Capital in a strategy to avoid greater regulatory oversight. Two other major lenders in reverse mortgages, Bank of America and Wells Fargo Bank, also have announced they were no longer doing reverse mortgages. The companies each said reverse mortgages were a small part of their businesses, and cited limitations on determining borrowers’ financial health as reasons for exiting, said John Lunde, president of Reverse Mortgage Insight, an Aliso Viejo consultant that tracks the industry.

According to RMI’s most recent report, covering February 2010 to January 2012, ORM did 4,736 loans for a total home value of $794 million, ranking it third among retail providers, but without Wells Fargo, it was second.

Banks that make reverse mortgages base the payments on the value of the homes and equity borrowers have in them.

The lump sum or monthly payments homeowners receive don’t have to be repaid until the house is sold or the borrower dies.

When the property is sold, the loan is paid off. In most instances, the payments range from 50 percent to 70 percent of the home’s market value, Smith said.

The criticism on reverse mortgages is that they carry higher upfront fees, but, Smith said, with a savers program introduced in 2010, the fees are negligible. For the standard program, the purchase of private mortgage insurance is required, but the payments are usually higher.

Growth Industry

ORM outgrew its older office, located near the current office at 9920 Pacific Heights Blvd., Smith said.

“We had 20 licensed bankers in 2007, and now we have more than 130 with immediate plans to hire more,” he said.

The company should add at least 30 bankers in the next year. Its operations team has increased from 16 in 2007 to more than 50 today, Smith said.

Silvergate Bank, which is based in La Jolla and has about $500 million in assets, got into the reverse mortgage business last year, but on a wholesale basis. Wholesalers purchase the loans from retail originators such as ORM and smaller mortgage banks, and usually hold them, as Silvergate does.

In the three months since it launched the business, the bank said it is averaging about 200 mortgages and $15 million a month, said Alan Lane, Silvergate’s CEO.

The fact that ORM is growing quickly endorses Silvergate’s decision to get into the market, which has a big upside due to a demographic shift now under way, Lane said.

“If you look at the aging population here and the number of baby boomers … and couple that with the challenges of Social Security and with so many people seeing their retirement income getting damaged from the economic downturn, tapping into home equity by seniors is something that is going to grow,” he said.

Silvergate was already providing loans to smaller mortgage banks through its warehouse mortgage division, which it launched in 2009, so the reverse mortgage business was a natural, Lane said. Silvergate is selling the prime mortgages to the likes of Fannie Mae and Freddie Mac, while it retains the reverse mortgages.

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