With more Canadians near retirement age, reverse mortgages seen as growing business
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The Ontario Teachers’ Pension Plan Board is acquiring the parent company of HomeEquity Bank, best known for its reverse-mortgage business, from Birch Hill Equity Partners Management Inc. and other minority shareholders.
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The purchase of the Schedule 1 bank is subject to regulatory approvals, expected in the first half of 2022. Financial terms were not disclosed.
Teachers’ said the bank is “well positioned for sustained growth” as more Canadians near retirement age, a prime time for reverse mortgages that provide loans against a home while the borrower continues to live there.
“HomeEquity Bank is an excellent fit for our growing portfolio of leading financial services firms,” said Karen Frank, senior managing director of equities at the pension fund.
“We believe the company has a high-quality management team, a solid value proposition for consumers and room to grow their business given Canada’s aging population as well as the increased attractiveness of staying in your own home as you age.”
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Teachers’ interests in the financial services sector include stakes in Canada Guaranty Mortgage Insurance Company, Allworth Financial, Fairstone Financial, and RATESDOTCA.
Steven Ranson, chief executive of HomeEquity Bank, said the pension fund’s long-term capital profile makes its natural fit for the business. Over the past nine years, private equity firm Birch Hill has provided a funding stream to the business.
The company has grown significantly during that time due, in part, to increased diversity of distribution channels, product expansion, and significant investment in marketing and technologies.
Disappearing workplace pensions have also been cited among factors pushing seniors to tap home equity in order to pay debts and fund their retirement.
In 2020, HomeEquity reported record originations of $820 million for 2019, up from $309 million five years earlier.
A reverse mortgage typically carries a higher rate of annual interest than a traditional mortgage but no payments are made until the homeowner sells the house or dies, in which case the loan must be repaid by their estate.
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