Reverse Mortgage Applications Stop Falling, Up 14% in February

201003142048.jpgThe Federal Housing Administration’s latest Outlook Report shows reverse mortgage applications were up 14.4% in February with 6,643 units. It’s the first increase for applications in a few months after only 5,805 in January.

While the uptick in applications is a good sign, HECM applications are still down 47.8% from February 2009 which had 12,731 applications.

The report also shows that while applications during FY 2010 are down 54.2% from the same period last year, actual endorsements are only down 15.3%. In addition, FHA reports that despite units being down, total max claim amount of HECMs endorsed during FY 2010 rose 0.9% from FY 2009 to $11 billion.

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During February the industry endorsed 7,024 HECMs, consisting of 6,358 traditional HECMs, 129 HECM for purchase loans, and 537 HECM refis. Total maximum claim amounts came in at $1.9 billion in February.

FHA Outlook Report

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  • At some point the radically lower application rate will take its toll on endorsements; it is just a matter of time. Let's be clear. HUD endorses; the industry originates and funds. Part of the delay in seeing lower HECM endorsements could be due to 1) unendorsed backlog at HUD for which there is no public source of data and 2) the nature of endorsement processing management at HUD.

    It is interesting that the MCA is on average under $300K per HECM. I wonder what it was for all of 2007, 2008, and 2009. If one were to evaluate HECM risk based on MCAs, it would seem the disproportionate influence of California and Florida would be much higher than even the sheer number of HECMs funded in those states.

    HECM risk is still more of a regional risk matter than a national risk consideration. So far, no model has focused on the regional risk concentration issues of HECMs.

    When viewed nationally, discounting HECMs is not a common phenomenon but when viewed regionally it is a far more serious issue. In one place, some brokers are not charging origination fees or upfront costs other than MIP (and if one counts it as an upfront cost — servicing fee set asides). Of course the MCAs in these deals are close to the lending limit. MCAs and bankend profits play a much bigger role today in HECM land than at any time in recent history.

  • Won't that leave those brokers in the lurch if the variable rate is chosen and the majority of the loan is left in a line of credit? What happens if their entire month of loans funded breaks that way? Seems slightly risky to me.

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