There’s been a steady stream of commentary in recent weeks about the bright future of reverse mortgages. The arguments go like this: baby boomer demographics combined with factors like inadequate pensions/retirement savings and higher health care costs are converging to create a situation that will almost certainly require a growing number of senior homeowners to tap into their home equity. The first stages of this boom are already being seen, but huge market potential remains that has been largely untapped to this point. A few examples:

Americans age 62 or older hold an estimated $4.3 trillion of home equity according to the NRMLA/Hollister Reverse Mortgage Market Index (RMMI). Although the reverse mortgage industry has seen tremendous growth in the last five years, only a little more than 300,000 reverse mortgages have been originated in its short history, representing less than 1% market penetration.

NRMLA Press Release

“There’s roughly 23 million seniors in the United States. Estimates on the dollar value of their home equity range from as low as $3 trillion to as high as $5 trillion - so we’re looking at a lot of money that could be unleashed into the local economies to help seniors….Even with 35 (percent) to 40 percent growth over the next several years, there would still be less than 5 percent market penetration….And that’s before you get to the next wave of baby boomers that will be coming into the marketplace (as seniors).

Financial Freedom Chairman Jim Mahoney as quoted in Mortgage Banking Magazine (June 2007)

I expect to see a million loans…probably sometime next year … and then I continue to see that double over the next eight to ten years as the baby boomer’s continue to move into the 62 and older space…

Ken Austin, Reverse Mortgage Solutions, as quoted on Bank360.net podcast

If you buy into this argument (and it’s hard not to), a next logical question might be “What are some companies positioned to benefit from this trend? Are there publicly-traded reverse mortgage stocks that might present good investment opportunities?”

We’re certainly not investment experts or great stock pickers, but we though it would be interesting to take a stab at locating such companies. We started by scanning the member and service provider directories on the National Reverse Mortgage Lenders Association (NRMLA) website. But it quickly became clear discovering “gems” wouldn’t be easy.

First, the major players in the industry (Wells Fargo, IndyMac, Bank of America) are financial service giants. Reverse mortgages - at this point in time - are a small (though growing) niche part of their business. For example, IndyMac, (parent to Financial Freedom - the largest reverse mortgage lender), reports that in 2006 the Financial Freedom division accounted for about 19% of it’s total Mortgage Production net income.

Clearly, with sub prime mortgage woes and other considerations, trends in the reverse mortgage industry probably won’t be driving the stock prices of these financial giants anytime soon.

What about opportunities in smaller companies more focused solely on reverse mortgages? The smaller lenders and service providers we came across mostly appear to be privately-held companies having no publicly traded stock. If there are any public companies focused primarily on aspects of the reverse mortgage industry, we didn’t uncover them.

Bottomline: At this juncture, opportunities to capitalize on reverse mortgage industry growth via reverse mortgage stock plays appear slim. Still, it is worthwhile to monitor industry related stocks and, so, we’ve added a section to the sidebar where daily stock prices of industry-related publicly traded stocks we know about will be shown.

If you are aware of other companies that should be listed, drop us a note and we’ll add them. Include the ticker symbol, if you know it.

Social tagging: Reverse Mortgage Tips

A Few More Related Articles of Interest:

New Fidelity Report Highlights Reverse Mortgages

Reverse Annuity Mortgage - Clarifying the Term

6. Have I considered other options to reverse mortgages?

Reverse Annuity Mortgage Can Be a Sensible Strategy