Reverse Mortgage Volume Down 31% in FY 2010, Analyst Optimistic for 2011

The last month of the Department of Housing and Urban Development’s FY 2010 may have ended on a low note − only 5,966 HECM endorsements, down 10.2% from August −  but a new report from Reverse Market Insight reveals an optimistic outlook for 2011.

For the federal government fiscal year, 79,096 reverse mortgages were endorsed during 2010, down 31.1% from FY 2009.  However, with new products available and a growing potential customer base, the RMI forecasts 95,000-100,000 units for FY 2011.

While the release of the HECM purchase came with lots of high hopes, execution of the product has been anything but impressive.  Reverse mortgage lenders endorsed approximately 1,000 of the loans in calendar year 2009 and volume has been flat or slightly down this year according to RMI.

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The company said it expects near term opportunities for growth to be small, when home values rebound, volume could increase.  “Further volume growth for HECM purchase may be linked more strongly to home price appreciation and expectations than other niches of the reverse mortgage business, even beyond the distribution channel challenges for lenders,” said John Lunde, President of RMI.

The HECM Saver is where RMI sees the most opportunity, estimating it could account for 20% of all production next year.  To reach this client, lenders will need to develop and use established relationships with financial advisory professionals according to the report.

The success of the product “is likely to be almost entirely dependent on lenders’ distribution channel penetration success and customer product acceptance,” said RMI.  Unlike the HECM for purchase which requires building new relationships with builders and developers, many lenders have already put in place “multi-year efforts to reach financial advisory professionals.”

Because of the existing relationships, RMI said the HECM Saver will get off to a much faster start than the HECM for purchase and has the potential to produce greater unit volume than HECM Standard/Traditional in five years.

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  • Saver won’t add much to volume because some folks will opt for it rather than a Traditional. And investment advisers, if they are honest with their clients, will not recommend doing a reverse at this point in the housing cycle unless it’s a last resort.

  • >>And investment advisers, if they are honest with their clients, will not recommend doing a reverse at this point in the housing cycle unless it’s a last resort.

    I don’t understand that part – why do you say that?

  • RMI says that Saver will be marketed to end users differently, through existing relationships with financial advisory professionals. If you have worked with them, you know how hard it is to have them see the value of a reverse to start with. Now you have to work to do that at a time where we are closer to the low end of the housing cycle than the top. Be honest, if you have a fiduciary responsibility that you take seriously, would you answer yes if you were asked by a client or family member that didn’t absolutely need one, “Is now a good time to do a reverse?”

    • Do you understand how much the expected interest rate influence proceeds from a HECM. If a client waits to get a reverse mortgage and the expected rate goes up 1% to 6% then a client’s principal limit factor will go down by 10-12% depending on their age. At age 65 they are only receiving about 50% of their home value in proceeds so to make up for the 10% loss in principal limit their home value would need to go up by 20%. Keep in mind that is a 1% increase in rates, it does not look any better at 2%, or 3% increase. I don’t know where you live, but I don’t see home values going up that much in the near future.

      • The expected rate floor has no basis in reality, it’s just to minimize HUD’s risk. If you saying that now is a good time because the expected rate is 5% and it will go higher soon, relax. If there was no FHA imposed floor the expected rate index would be 2.5%. The amount of money people get is based on this grossly higher than reality rate (5%). How much more would they get if the expected rate was closer to the 3.5% it would be without the artificial floor? (Lenders are making huge amounts of money for this very reason). What I’m saying is that there is a huge cushion that now protects the 5%. Real 10 year interest rates would need to move to 4% or higher from the 2.5% in the next year for the 5% to be at risk. That’s not gonna happen. In the real world home values could go up (they won’t) 50% or more before the 5% expected rate goes higher.

      • oldguy49,

        Wow, predictions for the next 15 months may seem reasonable but with the turoil in the political world and international economies, they are a little rash. Now they are on the Net. More emotion than reason? Most likely.

  • Admin,

    Is volume down 39% (title) or 31.1% (body)? I am a little lost on the percentages. As to endorsements, 31.1% seems to be correct. What a diastrous year!!!

  • Except for a few diehards teaching origination courses on the subject, I know of no one who honestly gave the HECM for purchase program much of a chance of succeeding during a time of home ownership turmoil. Until the housing market turns, HECMs for purchase should remain little more than a product on the shelf that we all need to be reminded is still there.

    Looking at some of the Saver offerings, I fully disagree with RMI. When you see Savers with higher interest rates than Standards, how can any advisor recommend Savers except for adjustable rate Savers in most (but certainly not all) situations? If they have less risk, then the question at the advisor and consumer level must be, why are they charging more interest? Yes, we all know it is the secondary market acceptance causing this strange phenomenon but that does not explain the problem to borrowers especially as to the fixed rate product where upfront costs could be higher on a Saver than on a Standard for the foreseeable future? That is absolutely backwards of expectations.

    If it takes more than a few months for the market to price Savers similar to Standards, all bets are off. Overall volume will NOT go up substantially (more than 15%) although adjustable rate Savers should see strong volume with the number of adjustable rate Standards endorsed during this fiscal year falling far below the number of adjustable rate Traditionals endorsed last fiscal year.

    Does anyone actually believe there will be a huge penetration into the CPA and attorney arena? Why? Because of Savers or a “Marine Corp” approach to the Monte Rose marketing concepts? Unless they have a more meaningful message than the past, good luck with that one. To be clear it has always been easier to sell through those who also sell products (financial, securities, and insurance). Yes, this goes far beyond the axioms about sales people selling to other sales people. It is a simple case of one supplying product and the other supplying the cash needed to acquire the product; you know — symbiotic behavior.

    The products are on their way to becoming right but what about the timing?

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