New View’s Michael McCully on the drivers of reverse mortgage M&A

As a wave of mergers and acquisitions (M&A) continues to impact the broader mortgage space, today’s deal activity in the reverse mortgage sector is less about splashy headlines and more about structural pressure building across the industry, according to Michael K. McCully, a partner at New View Advisors. As McCully puts it, “there are two things that typically drive M&A.” One is accretion and the other is “lack of risk tolerance or too much exposure to the industry.” In his view, reverse mortgages check both boxes — efficiency is rewarded and balance-sheet exposure is increasingly scrutinized. One key driver is capacity. “The HECM product has stagnated over the last handful of years and there continues to be excess capacity in the industry,” he says. The result, McCully argues, is predictable consolidation because “it’s more efficient to have fewer, larger originators and specialty issuers of the securities in the marketplace.” That pressure is already showing up in issuer concentration and business exits. “That’s why you’ve seen the number of major HMBS issuers decline over time,” McCully notes, adding that “it looks like it’s just going to be three large participants now...