Despite having lower overall volumes when compared to the forward mortgage business, Liberty Reverse Mortgage remains one of the more profitable segments of parent company Onity Group’s portfolio, according to information shared by executive leaders at a recent investor presentation.
At this month’s Sidoti Virtual Investor Conference, Onity leaders including CEO Glen Messina and chief financial officer Sean O’Neil offered details about the company’s performance over the past several years. They also discussed the products and offerings that have driven its recent earnings reports.
Onity leaders touted Liberty as the fourth-largest reverse mortgage lender in the country based on Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) issuance data from 2024.
But Messina also explained that a major potential growth area for the company is the proprietary reverse mortgage market, which has much higher lending limits than can be found in the Federal Housing Administration (FHA)-backed HECM program. While the company currently has a roughly 18% share of the existing HECM market, it currently has a 0% share of the proprietary space.
This was not always the case. In 2007, the company introduced Liberty Preferred, its first proprietary product, which eventually left the market. Twelve years later, what was then known as Ocwen Financial Corp. announced that it had developed a new proprietary product called EquityIQ.
It launched that summer and was briefly suspended due to COVID-19 market volatility in March 2020, but it was brought back a few months later. In 2022, the company suspended availability of the product again due to volatility in the bond markets, and it has since been removed from the market.
Liberty is now poised to reenter the proprietary space against seasoned competitors Finance of America and its HomeSafe product suite, as well as Longbridge Financial and its Platinum line. While Liberty’s product is still in development, Messina is enthusiastic about the possibilities.
“Obviously, launching a competitive jumbo reverse mortgage product thus gives the opportunity to grow,” Messina said. “And again, with an 18% [HECM] market share, we’ve got nice market coverage to push that product through.”
No timeline on a potential rollout was offered.
O’Neil offered some insight into the company’s profitability ratios. He explained that while the reverse mortgage business is much smaller than Onity’s forward correspondent and co-issuer channel, reverse has a much higher adjusted revenue margin per basis point.
In fiscal year 2024, the forward correspondent channel had an adjusted revenue margin of 24 basis points, while the reverse division had a margin of 341 basis points.
Reverse and the consumer direct channel, while being dwarfed by the forward correspondent channel, “drive substantially greater revenue margin,” O’Neil said.
In a “snapshot” of the company’s reverse business, O’Neil pointed out that Onity is a rare entity — a public company that originates, services and subservices its own reverse mortgages, which has a valuable place in the company’s overarching portfolio.
“[There are multiple reasons] why we like it,” he said. “I’ll point out that it’s a very effective hedge to our forward MSRs. We hedge our MSRs somewhere between 90% to 110%, and reverse is an important component of that.”
These multiple reasons include what the company calls “robust and consistent profitability,” upside potential for its originations market if rates decline, and an appeal to correspondent partners seeking a “one-stop shop” for all reverse functions.
It also has “pricing prowess and servicing skills to acquire reverse assets,” notable liquidity and accretive earnings via HMBS securitizations, and growth potential due to the high levels of senior-held home equity.
O’Neil also highlighted the company’s purchase of HMBS assets from Waterfall Asset Management as a positive move. That deal was originally announced during a Q2 2024 earnings call.
