March Was Great Month For Reverse Mortgages, Will It Last?

image Origination News writer Brad Finkelstein describes how even with the higher loan limits for the rest of 2009, it hasn’t exactly translated into more HECMs being originated.

In March, things seemed to have turned around for the industry as it endorsed 11,261 HECMs, up from 24% from February and easily breaking the previous record of 10,913 set in February 2008.  Even with those type of numbers, people in the industry are still worried about the months to come.  How come?

Marc Helm, chief operating officer, of Reverse Mortgage Solutions said it could be because of the state of the economy which makes seniors move more cautiously.  He adds that the lack of warehouse funds available to mortgage lenders in general, isn’t helping anyone.

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"You need the warehouse funds if you are a ‘Full Eagle’ and you want to sell your loans to Fannie Mae or another secondary market outlet for HECMs.”  Helm continued that warehouse funders do not differentiate between reverse mortgages and forward mortgages. "Quite frankly, the reverse mortgage has, I consider, little if no risk and turns through the warehouse count at a lot more velocity than a forward mortgage. So, I’m totally amazed reverse mortgage people have a hard time getting warehouse funds."

A reverse mortgage can be on the line for only 10 days, where as a forward can be on a line for 20 to 25 days. At that pace, warehouse lenders, he said, can earn more fees and gain maximum use of their funds.

The number of warehouse providers has been drastically reduced over the last year.  Just recently, Chase decided to exit the warehouse lending which sent many mortgage bankers scrambling.  On a positive note, Bloomberg reported earlier this week that Wells Fargo is telling lenders it may spend as much as $4 billion on warehouse lending to help meet some of the current demand.

Several lenders have told RMD that they’ve been in discussions with mid size banks about offering warehouse lines because done correctly, it’s a very profitable line of business for the banks.

The article also touches on the fact that our industry is dependent on Fannie Mae and no one is sure if other investors will come into the market until the economy improves.  "We’re not seeing any private investors come back into this segment right now. We’re not seeing the insurance companies stand up. There are some discussions that there might be some REITs come in to play, but we haven’t seen any positive action to that," Mr. Helm said.

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  • Our loans are on the line less than 5 days, so I echo your thoughts about “where’s the risk?”

    This is an example of where Obama could do something good for the Industry that would be helpful – guaranteeing the availability of warehouse lines. I’m anxious to see if he does.

    Regarding march Volume, if you analyze the numbers against the prior two years you will see spikes that relfect “catch up insuring”. So don’t go feeling too good yet. Maybe March was NOT as good as it looked.

    Take a look at Wells versus prior years as an example.

    Have a great weekend!

  • I think that once they understand reverse mortgages, most investors would agree that the risk for a reverse mortgage investor is lower than that of a forward mortgage investor.

    However (and other readers may know better) a good part of the problem seems to lie in assembling a sufficently large number of reverse mortgages to create a reverse-only investment. Despite increasing numbers of originations, it’s hard to fill a pool large enough to accomodate the large sums that institutional investors look to place.

    That’s why reverse mortgages were bundled in with other types of loans in most past securitizations.

    This is also another good reason why our 2008 expectations that we would avoid the consequences of the forward lending industry’s sub-prime mess were wrong. And it’s also a reason why these troubled mortgage-backed assets of banks and investors are not worthless but are hard to value.

  • 3 of my clients funded in March and each one had a shortfall – which is unusual for me because during the past 4 years I’ve NEVER had a customer that wanted to move forward if they had a shortfall. I’m working 6 files now and 3 are shortfalls … maybe the increased March volume is the result of shortfalls?

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