Reverse Mortgage Funding LLC Files Bankruptcy Fires 90% Of Staff
It’s the final curtain for Reverse Mortgage Funding LLC aka RMF. The NJ-based reverse mortgage abruptly halted all funding shortly after Thanksgiving. then, last week they filed for bankruptcy protection.
The group has further petitioned the bankruptcy court to allow it to make some minor payments to creditors and borrowers.
RMF’s troubles are not new. At the end of 2021, RMF made a similar mad-dash announcement that they were temporarily halt funding loans.
Rumors abounded at the National Reverse Mortgage Lenders Association conference earlier this year. The rumors prompted key industry insiders to proceed with caution when writing applications for RMF.
RMF does a substantial amount of its business in the FHA-backed HECM space. This traditional reverse mortgage is for homeowners who are 62 and older. These homeowners are looking to tap equity in their home without having the burden of monthly payments.
RMF distinguished itself from its competitors. They offered more diverse products under their Equity Elite brand name. Under that program, RMF offered loans for condominiums as well as to borrowers age 55 and up. Thus, this allowed them to widen its customer base. RMF wrote HECM loans up to $5M on a regular basis. It also sold ‘portfolio’ and ‘white label’ products through several of its powerful broker partners.
Problems Begin To Emerge At Reverse Mortgage Funding LLC
The problem arose in the smoke filled rooms of the secondary markets department controlled by Starwood Capital. Starwood Capital is a secretive private equity group based in Miami Beach.
The HECM loans that RMF and other lenders make eventually get taken over by HUD through the Ginnie Mae. Simply put, HUD slowed its uptake of RMF’s paper. This caused RMF to have to hold more debt than it would like to. As a result, this created an uneasiness from at least one of RMF’s key warehouse lenders. Over the Thanksgiving holiday, that warehouse abruptly collapsed, setting off the dominos that ultimately brought down RMF.
RMF went to bankruptcy court on November 30th. By then, it had already furloughed about 400 of its 500 employees. This included its entire wholesale sales force that generated the majority of its loans. By Thursday, the bulk of the salespeople reached a deal to move over to another lender.
RMF’s fallout could ultimately weigh in as high as $50 billion.