Liberty Reverse Mortgage parent company Ocwen Financial Services announced late last week that its wholly-owned subsidiary, PHH Mortgage Corporation, purchased reverse mortgage servicing company Reverse Mortgage Solutions (RMS) in a deal valued at just over $12 million that is expected to close in the third quarter of 2021. The deal could be a major difference-maker for Ocwen’s reverse mortgage efforts, to say nothing of the potential to strengthen the position of Liberty Reverse Mortgage itself.

For additional context on what the parent company’s acquisition could mean for Liberty in the future, RMD reached out to Mike Kent, the company’s president. Kent describes a scenario in which the acquisition is not expected to have a major impact on the operations at Liberty, but the ambition that the companies have certainly helped contribute to the sale.

Operational impacts

When asked specifically about whether or not this acquisition will impact the operations at Liberty in the short- or long-term, Kent describes a scenario where the immediate effects of the acquisition are not expected to be very disruptive for the company. That’s not to say that things cannot change as time goes on, though.

“In the short term, the transaction will have little operational impact on Liberty,” Kent tells RMD. “It does make us the only reverse mortgage company that originates, securitizes and directly services reverse mortgages. Longer term,  this transaction can provide our customers and partners a holistic, end-to-end superior customer experience.”

The importance for Liberty to be able to service its own loans is a big component of the equation, Kent explains, and will help to further set Liberty apart from other competitors.

“Owning and operating a world class reverse servicing platform certainly gives us several options to better serve our reverse borrowers and partners,” Kent tells RMD.

The acquisition also includes the assignment of RMS’ existing subservicing contracts, meaning that existing servicing arrangements RMS has with other entities will be assigned to RMS under its new ownership once the sale is fully finalized. According to the statement issued by Ocwen when it announced its acquisition of RMS, the servicing company had serviced approximately 35,000 reverse mortgages, translating into approximately $7.8 billion in unpaid principal balance (UPB).

PHH expects to assume the vast majority of the RMS reverse servicing and REO Management Solutions, LLC (REO) employees after the transaction, and PHH will become the subservicer under a five-year subservicing agreement for reverse mortgages owned by both RMS and its previous parent company, Mortgage Assets Management, LLC (MAM).

The new value proposition

It is also expected that the sale of RMS will help to increase the overall value proposition that Liberty will be able to present to new and existing borrowers, Kent explains, because of its company culture and philosophy that aims to place the borrower at the center of decisions which are made.

“[This sale] affords us the ability and opportunity to deliver end-to-end superior and consistent customer service to our borrowers and partners,” Kent tells RMD. “PHH/Liberty is a customer-centric organization. Our goal is to always see our service offering through the lens of our customers and continually strive to deliver solutions to meet their needs. Aligning our origination business with our reverse servicing business will make possible better retirement outcomes for our borrowers.”

In terms of what the broader reverse mortgage industry should be aware of when it comes to this change and potential disruption, Kent describes that the newfound abilities that will be granted to Liberty/PHH as a result of this sale should benefit customers no matter where – or with whom – their loans began, he says.

“The ability to manage the borrower experience from the origination process through the servicing process will set a new standard for service in our industry,” Kent says. “Aligning our origination business with our reverse servicing business will make possible better retirement outcomes for our borrowers regardless of the origination channel.”

The sale

According to the original announcement of the sale, the full deal by Ocwen/PHH to acquire RMS is reportedly valued at approximately $12.4 million, and is subject to post-closing adjustments. It is expected to be completed in Q3 2021, and will itself also be subject to any relevant regulatory requirements that may be applicable. The purchase by PHH/Ocwen was reportedly made in the interest of further strengthening the market position of Liberty, according to Ocwen President and CEO Glen Messina in the original announcement.

In terms of incorporating RMS into its reverse mortgage operations at Liberty, Messina also detailed that this sale should prove to strengthen Liberty’s overall position in the reverse mortgage space, but stopped short of detailing any additional components of the integration arrangement the company leadership is contemplating.

Kent’s latest comments indicate a desire on the part of Liberty to become a fully integrated end-to-end reverse mortgage company in a way it was not able to be before, but Messina did initially describe the acquisition of RMS as one which “complements our existing capabilities and further solidifies our leadership position,” he said.

Recent history

Ocwen posted preliminary first quarter 2021 adjusted pre-tax income of $6.6 million, a swing from an adjusted pre-tax loss of $23.4 million seen at the same point in 2020. Adding to the company’s more positive outlook is its reverse mortgage division, according to a statement at the time from Messina.

This is the second time in two years that RMS has been acquired by another company. In late 2019, RMS was first acquired by MAM after an odyssey of legal and financial issues plaguing RMS’ previous parent company, Ditech Holding Corporation, which aimed to sell RMS in order to resolve some of its other ongoing financial problems.

The sale of RMS to MAM also serves as the basis for a civil lawsuit filed by MAM against former executives that reportedly helped to facilitate the initial sale. Subjects of that lawsuit previously told RMD that there is “no basis” for MAM’s civil complaint.

According to Home Equity Conversion Mortgage (HECM) endorsement data compiled by Reverse Market Insight (RMI), Liberty is the fourth largest reverse mortgage lender in the industry, recording 3,133 endorsements over the 12-month period ending in May, 2021.