Property preservation company MCS is entering the reverse mortgage space after its acquisition of Five Brothers Asset Management Solutions, a deal which brings MCS into the reverse mortgage industry for the first time. After performing its due diligence to determine the market status and business opportunity that would come with entering the space, MCS CEO Craig Torrance believes that an entry into reverse could be beneficial for both his company and the wider reverse mortgage industry.
This is according to an interview with Torrance conducted by RMD. We sat down to discuss the dynamics of entering the business, what MCS hopes to bring to the table and what the future may hold for the company going forward.
Editor’s note: This interview has been edited and condensed for clarity and readability.
Chris Clow/RMD: How much did Five Brothers’ position in the reverse mortgage industry play into the decision to acquire it?
Craig Torrance: How I think about these things is that the reverse mortgage space is different from the forward mortgage space, with different regulations, platforms, requirements and customers. It’s essentially a different world. But when you boil it down to the services that we provide, particularly in property management and preservation — maintaining the asset and ensuring it is preserved — the core activities like maintaining properties, cutting grass, fixing roofs — are quite similar across both spaces, whether you’re in a foreclosed forward mortgage that’s running through Fannie Mae or Freddie Mac, or whether you’re on a HECM that’s going through the default process.
When MCS tried to get into this space prior, we found that the process behind reverse mortgages and the customer types are different. Five Brothers has a smaller forward part of its business but focuses more on the reverse side. We found this to be a good fit.
Clow: What do you think MCS can bring to the table on reverse based on this acquisition?
Torrance: Many of these kinds of services are handled by local vendors across the U.S., whether it’s cutting grass or other maintenance work for forward or reverse properties. The vendor network has faced challenges recently, leading to a struggle in maintaining a robust vendor network.
[By merging our resources with Five Brothers], we can create a larger vendor network, which allows us to get service done better, easier, faster and more efficiently than if we were two separate networks.
We think this is beneficial for managing properties in any zip code, improving service distribution and maintaining quality. There was a degradation in the vendor network over the last five years post-COVID, and we found we needed to consolidate. What that does is open up more people to do that work within the space. The synergies between the organizations were that they’re in reverse, we’re not. We both have a vendor network, and if we put them together, we have a larger vendor network to pull from and get this done across both sides.
The other piece is we have a self-perform engine which came out of our single-family rental (SFR) business. Our employees and service centers nationwide were doing home remodeling, renovations and repairs for SFR work. [We found this] could be useful in the reverse mortgage space, where there might be a need for services like remodeling for better accessibility for that customer set, which Five Brothers was not previously offering.
[So, combining these elements] not only enhances the service offering for reverse mortgage customers but also leverages the expanded vendor network. Essentially, this integration means one plus one equals three, signifying more value and efficiency in our comprehensive service approach.
Clow: It sounds like you did a fair amount of homework on the reverse space well before this acquisition came into play. Did Five Brothers share data points with you about loans that are coming up to their due and payable dates that made this a more enticing proposition? What data would you say helped illustrate why this made the most sense?
Torrance: We look more generally at the outlook for the reverse space. In our due diligence, we spoke with various folks currently in the space and those who recently retired from it.
We observed that there’s an upside across reverse mortgages, which makes us feel bullish about the reverse space. I don’t think there will be a tsunami of new originations in the reverse space, but we did see a general swell, which helped underpin it. Looking at the current book of business with Five Brothers, and doing some math, we think there’s probably more upside risk than downside in the reverse space over the next three years.
Some of this will depend on what the Fed does with interest rates in the next 12 months. But we feel there is likely, if we were placing a bet, more upside, which factored into our decision. This, along with the dynamics of what we can achieve in terms of business growth and understanding what the market itself is doing, led us to believe that this was a good acquisition.
Clow: Reverse mortgage originators are still often primary points of contact for borrowers — sometimes years after an origination. That might put originators in first position to inform the servicer of necessary maintenance. Is there any partnership or communicative potential between you guys and lenders, or are you staying focused on servicers?
Torrance: Right now, I think it’s TBD. Certainly our day-to-day relationships are most likely to be with servicers. What we’re bringing to the party comes down to a broader set of services that can help folks in this space, but I’m not sure people fully understand what those services are yet, so there’s probably a need for more communication. We remodel homes all over the country today, providing new kitchens and bathrooms, maintenance services, and we’re probably the largest in that space in the country.
I think as more people learn about the services we offer, the key question is, “how do we create value for the lenders, the originators, the homeowners, and manage that process? Can we deliver a service that is additive to the overall process?”
One idea revolves around marketplaces, where those in a reverse mortgage can go to find services they can trust, knowing the companies listed are vetted, good companies. My early diligence suggests that people in the reverse mortgage segment are more risk-averse, concerned about hiring a contractor or service provider without getting ripped off, ensuring they get good service, and knowing that the people who come to their homes are checked, professional, wear an MCS polo shirt, have a truck, are insured, etc.
Once we, as an industry, start professionalizing some of the services and perhaps open up more of a marketplace model, I think there’s more demand there that’s currently not tapped because people just don’t know what they could go get.
