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Originally published Friday, June 24, 2011 at 10:00 PM

MetLife rises to top of reverse mortgage business

Competitors Wells Fargo and Bank of America retreat from reverse mortgage business.

Bloomberg News

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MetLife, the biggest U.S. life insurer, is poised to become the No. 1 reverse-mortgage lender as Wells Fargo and Bank of America leave the market.

Wells Fargo, the largest U.S. home lender, is retreating from reverse mortgages in part because of "unpredictable home values," the company said June 16.

The reverse mortgage was the most prominently featured product on the website of MetLife Bank, 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," said David Lykken, president of Mortgage Banking Solutions, an Austin, Texas-based consulting firm.

"They're too smart to be heading into an area that's disastrous."

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 May from fifth two years earlier, according to the Department of Housing and Urban Development.

"MetLife had been zooming toward No. 1" even before Wells Fargo announced its departure, said Marty Bell, the National Reverse Mortgage Lenders Association's director of marketing and communications. "They've been in it a lot shorter time than everybody else, and they've been really building it."

MetLife entered the business in 2008 with a purchase from EverBank Financial. Later that year, the insurer bought a mortgage business from First Horizon National. The employee count at MetLife Bank, the insurer's lending unit, surged to 4,985 at the end of March from 3,768 a year earlier, according to the Federal Deposit Insurance Corp. The worker count was 85 at the end of 2007.

Reverse-mortgage lenders issue loans to homeowners and accept real-estate equity as collateral. The contracts allow borrowers, age 62 or older, to remain in their homes and receive either a lump-sum payment or a stream of income.

The lenders — or the mortgage investors that purchase the loans — count on making a profit when the property is sold after a borrower's death or relocation.

Borrowers or their heirs may keep proceeds that exceed the amount owed the lenders.

"It's a retirement-planning vehicle, so it's something more natural that a life insurer like MetLife would offer," Randy Binner, an analyst with FBR Capital Markets, said in an interview.

"It's a small, but growing part of their business."

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