MetLife Eyes Reverse Mortgage Market as Giants Exit

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Upside
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Market
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MET: MetLife logo
MET
MetLife

MetLife (NYSE:MET) seems to be keen on reaching the top spot in the reverse mortgages market. That would justify the company’s efforts to grow soon after two of the largest providers of reverse mortgages – Wells Fargo (NYSE:WFC) and Bank of America (NYSE:BAC) – announced their departure from the market. ((MetLife Pushes Reverse Mortgages as Wells Fargo, BofA Retreat, Bloomberg)) MetLife is the largest life insurer in the U.S. with total assets of over $700 billion and competes with AIG (NYSE:AIG), The Hartford (NYSE:HIG), Prudential Financial (NYSE:PRU) and New York Life.

We have a price estimate of $49 on MetLife’s stock, around 20% ahead of the current market price.

Wells Fargo and Bank of America Exit

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Wells Fargo is the largest provider of mortgages in the U.S. and decided to exit reverse mortgages business because of the unpredictability in home values. Bank of America also announced its departure from the reverse mortgage business earlier, owing to a resource crunch.

The reverse mortgage market is supported by the Government National Mortgage Association, Ginnie Mae, which guarantees the loans issued by lenders like Wells Fargo, BofA and MetLife. These loans are subsequently sold to investors, with the lenders charging them to monitor home collateral and to ensure the terms of the contracts are met.

Opportunity for MetLife

William Wheeler, MetLife’s CFO, states that the expansion into the reverse mortgage business provides a natural hedge to MetLife’s core insurance business when the interest rates are declining. ((MetLife Pushes Reverse Mortgages as Wells Fargo, BofA Retreat, Bloomberg))

MetLife had 932 reverse mortgages in May this year, second only to Wells Fargo with 1,092 reverse mortgages. This indicates a marked improvement since May 2009 when MetLife ranked fifth with 199 mortgages compared to Wells Fargo’s over 1,400. MetLife’s aggressive venture into the reverse mortgage market would help it increase its mortgage revenues from $4.2 billion in 2010 to nearly $4.5 billion by 2017.

See our complete analysis of MetLife