The exit of two leading reverse mortgage lenders this month, 1st Reverse Financial Services and World Alliance Financial, is more bad news for an industry that has taken lumps lately from federal and state regulators and legislators. But lead executives with both companies remain optimistic that investors will come in to help re-start their businesses.
Westmont, Ill.-based 1st Reverse is the latest casualty as its main investor WSFS Financial Corp. announced this week it is winding down the company. The lender will take its last applications July 31, said President Ralph Rosynek. About 20 to 25 employees, about 80% of its workforce, will be laid off at that time, he said. But the company will remain operating for several months as it continues to close pending deals.
“We have a very large pipeline to deal with at this point,” Rosynek said.
WSFS, the parent of Wilmington Savings Fund Society Bank, paid $3.4 million for a 51% stake in 1st Reverse in April 2008. 1st Reverse cut its expenses and increased fee income in the second quarter. But the reverse mortgage lender has not been profitable, and the bank has decided to fold its cards.
“Despite the improved results, the subsidiary has still not reached breakeven levels and in the current economic climate, prospects for achieving required returns are weak,” said WSFS President and CEO Mark A. Turner in a company statement.
WSFS said it was taking a $1.6 million pre-tax charge in the second quarter related to 1st Reverse. 1st Reverse reported a pre-tax loss of $152,000 for the second quarter compared to a loss of $586,000 in the first quarter. Last year, its loss was $1.9 million, according to a financial statement.
Rosynek said he is looking for an investor who may want 1st Reverse’s established retail and wholesale business that caters to smaller brokers as he would like to see the company continue.
