Countrywide Financial Corp. plans to enter the reverse mortgage market by yearend. The mortgage giant intends to dominate the sector once it gets its feet wet, according to Countrywide's Chairman and Chief Executive Angelo Mozilo. This is a strategy that could mean a sizable increase in reverse mortgages floating about the secondary market. The Calabasas, Calif.-based lender was driven to enter the sector because of the product's growing secondary market acceptance as well as its growing pool of potential customers, who are homeowners aged 62 and higher.

"You have a growing population of elderly who have outlived their money and are using their home as their only savings account. Evidently there is a shift in that age group - where they have spent their lives paying down their mortgages, but now have no problem in tapping that equity," Mozilo said last week during the company's second quarter earnings conference call. "I think that it is a great market for us to participate in, and like anything else, once we get in it, we will dominate it."

IndyMac Bancorp Inc. subsidiary Financial Freedom Senior Funding Corp. currently holds at least a 50% market share in the reverse mortgage market; Mozilo said he'd like to see Countrywide begin to infringe on that position within the next three-to-five years by tapping into various partnerships for marketing opportunities. Financial Freedom in the second quarter reported record origination volume of $1.3 billion - up 109% from the year earlier's $639 million.

The IndyMac case

The move by Countrywide comes at a time when the secondary market for reverse mortgages is beginning to bloom. As many as six deals backed by reverse mortgages have been discussed for the second half of this year, according to rating agency and private sources. (ASR, 07/17/06)

A backlog of housing equity yet untapped, along with the aging U.S. population, has an increasing number of mortgage lenders interested in issuing the loans. Secondary market developments within the reverse mortgage market contributed to IndyMac's decision not to spin off the company in an IPO this year and to buy Financial Freedom outright in early July. The lender, which historically has sold its proprietary loan product to Lehman Brothers, has negotiated a deal to sell its federally-insured strain of reverse mortgage loans to an additional private investor. The lender is also considering the prospect of direct securitization.

Almost all - about 95% - of reverse mortgage loans are Home Equity Conversion Mortgages, which are insured by the Federal Housing Administration. Regulatory changes in recent years have paved the way for those loans to now be packaged into REMIC structures.

(c) 2006 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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