Optimistic Reverse Mortgage Outlook But Challenges Remain

After a challenging fiscal year in 2010, attendees at last week’s Annual Meeting of the National Reverse Mortgage Lenders Association still seemed upbeat about the future of their companies and industry. It helped to hear Jeff Lewis, senior managing director, Guggenheim Partners; and chairman of the board of Generation Mortgage Company, predict a 25 percent increase in reverse mortgage originations next year.

“We did 80,000 last year,” Lewis told a general session audience. “This is a great product,” he went on, “and I think we’ll do over 100,000 next year.” Discussing the new HECM Saver product, Lewis noted that “it isn’t just to replace a loan that is fixed. It’s a way to grow the market [and] bring in people who aren’t just running out of money.”

FHA designed HECM Saver as a second initial mortgage insurance premium (MIP) option for the purpose of lowering upfront loan closing costs, for mortgagors who want to borrow a smaller amount than what would be available with a HECM Standard.

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David Peskin, former chairman of Guardian First Funding in Melville, N.Y., echoed Lewis’ optimism, but with a caution. “In general, it’s still a good market but with home values down, it’s a problem. In the past,” said Peskin, “you could originate six out of the 10 loans” you talked to people about. “Now, we’re down to three or four.

The customer base is there but home values don’t support the loan they want,” he explained. “The principal limit factor reduction didn’t help either. Although, front-end fee reductions and removal of servicing set-aside offsets helped, “they were not enough,” laments Peskin. “We’re working harder to get same amount of loans as used to.”

Written by Neil Morse

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    • Given that our entire 21 year history has been dominated by a government product, is it any wonder that political tides are setting the level of our boat?

      FHA/HUD support of the industry (along with Fannie, Ginnie) has been essential to our evolution, but someday we will actually need to have some of the training wheels come off.

      The connection between government support and fickle fate resting on a new product is clear.

  • We have one and only one secondary market execution and that is Ginnie Mae. We are now told by the FHA Commissioner Stevens, that are fate lies in the success of the HECM Saver.

    We are in a seriously crazy and yes, seriously fragile, industry.

  • The projection provided by Jeff is in no way materially different than that of John Lunde. How is there any risk to a projection in a 25% increase when the volume for the last fiscal year is over 30% lower than fiscal 2009? And what if the volume for the current fiscal year is 25% lower than the last, who will remember the current projections other than a few?

    The conservatism in the projection stands out even the more with no public predictions by these business leaders on market conditions 5 to 10 years into the future. But who can blame them? In 2006 and 2007 we began seeing wild claims about where the industry would be by now. HECMs would be a significant but minor portion of our industry. Proprietaries would be THE rage.

    Who can forget the expression of disbelief and the release of surprised laughter from then FHA Commission Montgomery when he was asked about such a market? His description of the future was rosy but not nearly that of industry leaders. While things looked great during those heady days, suddenly without warning the housing disaster struck and the meat pie of the day was crow.

    There is a reason for the concern in David’s message. I commend David for presenting them and Neil for quoting them. While it seems sales forces love growing sales numbers, the question is which message will we take away? Getting to a 25% increase will not have the easy path it did in prior years. We need to return to our roots where our emphasis was not on volume but rather on care.

    Reading the tone in some recent RMD comments causes pause. In tough times concern for the borrower has a tendency to fade. Now that things look rosier, we need to take hold of the right priorities or we will look like an industry which promises much and delivers little and where “figures lie and…..”

    • Thank you for these words: “We need to return to our roots where our emphasis was not on volume but rather on care.”

      I am not sure my question (above) registered. The plea to push the untested HECM Saver to rescue the HECM Standard strikes me as odd.

      It raises some fundamental issues. With principal limit cuts two years in a row, 150 percent MIP hike, and $140 million subsidy for fiscal 2011, why the “Save the Standard” plea? What are we not being told? What volume of Saver will save the Standard? Given the industry’s 21-year anemic volume history, what strategic calculations informed the decision to tie the fate of the Standard to the Saver? Coming from the chief industry regulator, how will the push for Saver volume to save Standard affect industry production standards and practices?

      • Atare,

        On July 29th, 2010, the House passed HR 5850 with a $140 million subsidy for the HECM program but the Senate failed to act on it; therefore, the subsidy for fiscal year 2011 was never enacted. I believe it is because of the introduction of the Saver on 10/4/2010 that HUD did not pursue any subsidy for the current fiscal year (2011) in its most recent Continuing Resolution. Their projections indicate that the net revenue Savers endorsed during this fiscal year will more than offset any loss from the Standards endorsed during this fiscal year.

        If I am correct, HUD is trying to avoid going back to Congress next fiscal year to obtain an appropriation for the current fiscal year because actual Saver volume is lower than they are projecting they need to offset losses from Standards. As of yet, I know of no time that Congress has appropriated a subsidy to the HECM program.

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