WSFS Financial Corp. wrote down $2.4 million in the fourth quarter related to reverse mortgage investments. Meanwhile, 1st Reverse Financial Services, a reverse mortgage lending company the corporation bought last year, has adjusted its business model as it posted almost $1.6 million in losses during the second half of 2008.
Wilmington, Del.-based WSFS Financial, the parent of WSFS Bank, released its fourth quarter and year-end results yesterday. Some details of its reverse mortgage investments were originally announced by the company on Jan. 22.
1st Reverse posted a loss of about $1.6 million in the second half of 2008. The reverse mortgage company increased its fee income in the fourth quarter by $273,000 compared to the third quarter, for a total of $449,000. But expenses increased by $308,000 to $1.3 million in the fourth quarter.
WSFS spent $3.4 million for a majority stake in Westmont, Ill.-based 1st Reverse.
“Since the acquisition in April, the business plan for 1st Reverse has been negatively impacted by regulatory changes and changes to the mortgage market in general,” the company said in a statement yesterday.
The company has restructured its operations including relying more on retail loan originations, reducing fixed expenses, and lowering expected breakeven origination volumes, the company stated. Despite the negative results, a goodwill impairment test of 1st Reverse required by the Financial Accounting Standards Board resulted in no impairment.
WSFS also announced it took a $1 million charge through interest income on its second-lien interest in 21 whole reverse mortgages. The write down was due to decreased home values securing these mortgages over the past year.
WSFS recorded a $1.4 million charge on a $12.4 million BBB+ security issued in a 2002 reverse mortgage securitization. The decreased value was a mark-to-market adjustment as a result of widening spreads for lower-rated securities in general. But the company believes it will receive a full return on the principal and interest if the security is held to maturity due to its seasoning and “significant over collateralization,” it said on Jan. 22.
Sources: Earnings news release, Jan. 22 news release
