Low termination rates on reverse mortgages reported

The first meaningful measurement of reverse mortgage performance, expected to be presented this month to select industry members, will reveal surprisingly low termination rates.

The Reverse Market Insight, Inc. “Industry Data Repository” includes information from four of the top 10 reverse mortgage originators in the country and six of the top servicers, according to John Lunde, RMI president, who told RMD that he is hopefully expectant of having seven originators in all on-board and providing data by year’s-end.

At that point, he anticipates being able to collect vital lifecycle information on “60 to 70 percent of [all] national production, which would be a major achievement,” said Lunde, adding that “anything over 50 percent would be a meaningful enough sample.” Besides, he notes, “there was nobody collecting [such] data on the reverse mortgage industry [as recently as] four years ago.”

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A recent article by Darryl Hicks, Vice President, Communications, National Reverse Mortgage Lenders Association, noted that, “For 20 years, a void has existed in the reverse mortgage marketplace…while the industry’s largest players supported the idea of having a single data repository, nobody was focused on the data challenges of the industry…”

Lunde was reticent about revealing detailed findings in his forthcoming report ahead of time, but he did tell RMD that “one surprising thing I’ve seen [in the data] are very low termination rates,” i.e. the rates at which loans are being paid off (retired). It is a “phenomenon” that Lunde predicts will be “temporary. We’ll see a move within the next year closer to historical [higher] rates,” he said, noting that the current trend was a result of the broad “housing price correction” being experienced nationwide. “Folks are moving less and refinancing their reverse mortgages less,” he explains, adding that termination rates are less than half of what they were only two years ago.”

One servicer familiar with the repository put the average age of all reverse loans today at “more than seven and a half years.” This professional further explained the overall importance of the data gathering, noting: “It helps us know more about what a loan is worth relative to its potential age.”

Written by Neil Morse

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  • u201cOne servicer familiar with the repository put the average age of all reverse loans today at u2018more than seven and a half years.u2019u201d No doubt, Mr. Morse correctly cited the servicer; however, it is doubtful if the average age of an outstanding HECM is even close to 7 and one-half years. Since HECMs compose over 90% of all reverse mortgages, we will focus on this group of reverse mortgages and this group alone.rnrnTo understand why the quoted statement is suspect, one simply has to look at the endorsement information provided by HUD. HUD supplies this information month by month. The information I am using was taken from the NRMLA website which summarizes that information on a fiscal year basis. rnrnIf one simply multiplies all HECMs which have been endorsed by the number of years (using a simple half-year convention rule) since endorsement and divides that number by the total of all HECMs which have ever been endorsed, that average is barely above 4 years. If the terminations are skewed toward the oldest cohorts, that makes the average life of all outstanding HECMs even less. (A cohort in this comment means all of the HECMs endorsed in one federal government fiscal year which ends September 30.) rnrnFrom program inception to September 30, 2003, less than 13% of all endorsements which have ever occurred took place. That means over 87% of all HECMs endorsements occurred in the last eighty-four months (or 7 years). Through September 30, 2005, just over 25% of all HECMs ever endorsed had taken place in that 15 year span. In the last 3 years alone, more than 45% of all HECMs have been endorsed. rnrnIt is HIGHLY unlikely that more than 10% of all HECMs have terminated, if the average age at termination exceeds seven years. What the servicer being quoted mostly likely meant is that the average lifespan of HECMs currently being terminated is about 7 and one-half years; that seems likely but it is not what was stated.rnrnIt will be helpful to get accurate information. Speaking in overall averages with faulty assumptions is hardly the hallmark of a mature and sophisticated industry. I certainly hope that RMI will not keep this information to a small group of lenders but will open it up to the entire industry. If my conclusion is wrong, I certainly hope that either Neil or the servicer (by name or anonymously) will speak up.rn

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