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Portfolio > Asset Managers

MetLife Fills Reverse Mortgage Void to Hedge Against Insurance Industry Contraction

By John Sullivan

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MetLife is taking full advantage of the recent decisions by Wells Fargo and Bank of America to leave the reverse mortgage market. But industry watchers are wondering why MetLife would dramatically increase its presence in the market, especially with a dismal housing market that could significantly reduce any return on investment the company receives when the properties are eventually sold.

The reverse mortgage is the most prominently featured product on MetLife Bank’s website, a unit that the company said may hedge the parent against declines in the main insurance business.

“They must know something that I don’t know,” David Lykken, president of consulting firm Mortgage Banking Solutions, told According to Bloomberg last week. “They’re too smart to be heading into an area that’s disastrous.”

As Bloomberg notes, demand for reverse mortgages contracted from record sales in 2009 after the housing slide eroded the home equity that seniors draw on to qualify for loans. MetLife climbed to second place in reverse mortgages in May from fifth two years earlier, according to the U.S. Department of Housing and Urban Development.

The expansion of MetLife Bank gives its parent a “natural hedge” against a contraction in insurance returns when interest rates decline, William Wheeler, the insurer’s chief financial officer, said in December. That’s because more borrowers refinance mortgages when rates are low, he said.

The news service says MetLife Bank, which sells the mortgages it issues, had $15.6 billion of assets as of March 31, according to the FDIC. San Francisco-based Wells Fargo’s main unit had $1.1 trillion of assets, while Charlotte, N. C.-based Bank of America’s biggest FDIC-regulated subsidiary had $1.5 trillion.

Bank of America, the biggest U.S. lender by assets, announced its exit from reverse mortgages in February, saying the staff and resources used by the operation were needed in other parts of the company. Bank of America posted a $2.2 billion loss last year as it negotiated settlements with counterparties who accused the bank of selling loans based on fraudulent data.

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