Demand for reverse mortgages suffered as home values declined
Los Angeles, CA (PRWEB) December 14, 2012
The Reverse Mortgage Providers industry has experienced sharp declines in line with the overall mortgage sector over the past five years. IBISWorld estimates that industry revenue declined at a 6.2% average annual rate from 2007 to 2012. According to IBISWorld industry analyst Doug Kelly, “the subprime mortgage crisis and subsequent recession decimated home values and with them the equity of homeowning seniors.” Homeownership rates fell, and consumers made an effort to reduce their debt levels, including mortgage debt. In particular, the declines in housing prices significantly decreased seniors' home equity while increasing the number of households with negative equity, thereby reducing the industry consumer base and cutting into its profitability.
Declining demand and profit had a dramatic impact on the industry landscape over the past five years. “The total number of reverse mortgage loans originated declined at a 7.4% annualized rate between 2007 and 2012, falling from its peak of 114,692 in 2009 to an estimated 73,096 in 2012,” says Kelly. A number of firms exited the industry, including the top three lenders – Wells Fargo, Bank of America and MetLife – over the course of 2011 and 2012. About 1,622 smaller firms now aggressively compete in a small market that has seen just about 70,000 new mortgages originated annually over the past three years. The industry has become increasing comprised of small lenders and brokers, the majority of which only originate, broker or service a handful of reverse mortgages a year. In 2012, IBISWorld estimates that firm exits and weak demand will cause industry revenue to contract 6.2% to about $9.6 billion, despite some early signs of a housing recovery.
The Reverse Mortgage Providers industry is estimated to have a low level of concentration, with the top four industry operators accounting for about one-fifth of total revenue. The industry used to be more heavily concentrated prior to the exit of the industry's two largest companies, Wells Fargo and Bank of America, in 2011; the two companies were estimated to own a combined 36.0% market share. MetLife, the industry's largest operator in 2012, has also announced its intention to exit the industry, so the industry will continue to become more reliant on brokers and small correspondent lenders. MetLife cited the need to focus on its core businesses and the uncertainty of new regulations in the reverse mortgage industry as the reasons for its exit. Industry concentration should remain relatively stable over the next five years as the number of firms remains relatively flat and business is dispersed amongst a wide-range of providers.
Over the next five years, IBISWorld forecasts industry revenue will grow. A recovering housing market and improvements in senior finances in line with the overall economy are expected to return the industry to growth from 2014 onward. An aging population and increasing acceptance of reverse mortgages as a viable retirement planning option will also underpin growth. However, the majority of this growth will come in the latter half of the outlook period as the industry deals with new regulations and continued high default rates, low housing prices and weak demand.
For more information, visit IBISWorld’s Reverse Mortgages Providers in the US industry report page.
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IBISWorld industry Report Key Topics
This industry includes private industry firms that originate, broker and service reverse mortgage loans. Reverse mortgages are loans available to seniors that are used to release funds from their home's equity in one lump sum or multiple payments.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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