FHA Mortgage Applications Fall 19.5%, HECM Outperforms

The number of reverse mortgage applications fell 0.4% in November, coming in at 8,217 units according to data released by the Department of Housing and Urban Development (HUD).  While the number may not be too exciting, November’s application volume is up 25% from last year.

Overall, Federal Housing Administration applications fell 19.5% during the month, with the HECM performing better than all other products.  While only two months into the new fiscal year, HECM applications are up 32.1% from the same period last year.

Endorsements for reverse mortgages came in at 6,559 units during November with a max claim of $1.7 billion according to the report.  Endorsement characteristics were up across the board for the most part except for the percentage of HECM refinances falling 0.4%.

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  • To be clear these were not the total number of applications taken by lenders during the month of November 2010. These are the total number of case numbers assigned by HUD on HECMs during November 2010.

    HUD says the numbers represent the following: “The actual count of application receipts was 141,199. This included 63,920 purchase transactions, 69,062 refinance applications as well as 8,217 reverse mortgage case number assignments.”

    To become a case number assignment, the borrower must not only have completed an application but the borrower must have also completed counseling. The percentage of these loans which become endorsements are much higher than the true total number of applications taken.

    The month when an application is taken and a case number assigned can be very different. In some cases we have seen as much as a 12 month difference.

    I do not believe there is any information available anywhere which accumulates the number of HECM applications taken by lenders in any one month.

    • HUD has it under the applications section on the first page and calls them applications on the 2nd page.

      I think you’re reading to much into them. Also, it’s the first time HUD has ever used the terminology “case number assignments.”

      • Admin,

        You are probably right.

        It does impact the significance of pull through rates and other measures of successful completion of loans.

        You know me; I look beyond the surface. That is what critics try to do. Sometimes conclusions are in another world and then there are times when….

        It is at case number assignment that HUD first gets wind that an application has been taken for a specific borrower. I have no idea how they would provide these HECM statistics unless they were using assignment information.

        You are in good company; John Lunde in the past agrees with your position that these are not assignment statistics but application stats based on the category and other verbage. It will be interesting to see how HUD labels the info next month.

    • So long as figures are calculated the same way each month, the trend and percentage change, up or down, are more important than whether HUD is capturing the actual “application” count by any particular definition.

      • REVGUYJIM,

        That is a very narrow view of the importance of the definition of a term. If a firm is comparing pull throughs to the industry verified numbers (HUD’s) and they find their application to endorsement percentage lower but their assignment to endorsement much higher, what should they consider the results to mean?

        It is obvious you have not been involved in management.

      • Given the uncertainties surrounding HUD’s numbers – often discussed in this forum in terms of both definition and timing – the results of the comparisons you suggest have to be interpreted and taken with a very large grain of salt. I was not aware that HUD has visibility as to applications prior to case number assignment, and have felt “application” and “case number assignment” are (erroneously) used interchangeably by them. Perhaps I have learned something here, which is why I read these comments.

        I find your closing remark both unnecessary and irrelevant to the discussion at hand.

  • Reading the interpretative report on “application” numbers on the website of an industry prognosticator was a jolt. He politely insisted his prognostication for the total number of HECMs to be endorsed during the current fiscal year still optimistically has a chance of coming true. However, he gave it a twist in talking about the new year. It seems he could be shifting his 30%-40% increase in endorsements from the fiscal year ending September 30, 2011 to the calendar year 2011.

    But the prognosticator is not by himself in still predicting this high number of endorsements. There was at least one similar prediction made at the NRMLA Convention in New Orleans last month. But that should not come as a surprise to anyone who remembers the heady predictions about proprietary reverse mortgages at NRMLA conventions during about an eighteen month period starting a little over four years ago now.

    So what is the significance of the assignment numbers above? If the lag between assignment and endorsement is 4 months, then all but a few of the applications with case numbers assignments made after May 31, 2010 but before June 1, 2011 which ultimately result in endorsement will be endorsed during the fiscal year ending September 30, 2011. From the data above, it seems the total number of assignments has dropped by over 12% for the six month period ended November 30, 2010 (57,679 assignments) when compared to the similar six month period ended November 30, 2009 (65,178 assignments). Unless the pull through rate will miraculously rise to allow a huge increase in endorsements, how can endorsements for this fiscal year reach these lofty projections — unless the prognosticator is expecting an unrealistic rise in assignments over the six month period which ends May 31, 2011 with a correspondingly high pull through rate on those assignments? (The oversimplified definition of a pull through rate is the percentage of assignments which eventually [and normally] become endorsed HECMs.)

    Just to get to the assignment numbers which we saw during the twelve months ended May 31, 2010, we need a 17% increase in assignment volume during the six month period of December 1, 2010 to May 31, 2011 (a computed total of 50,794 assignments) over what it was during the six month period of December 1, 2009 to May 31, 2010 (an actual total of 43,295 assignments). The total assignments for the twelve consecutive month period ended May 31, 2010 was 108,473. But remember the prediction is 30% to 40% more endorsements this fiscal year over last, which would require a similar increase in assignment volume over last year. So where are these 90,000 (or more) assignments going to come from before June 1, 2011? That is 18,473 short of the entire volume of assignments for all of the prior fiscal year. Will the pull through rate miraculously grow this fiscal year over last? Maybe it will be some combination of higher assignments and a higher pull through rate? Could Hercules pull that off?

    Why are the prognosticators pinning so much hope on their original projections? Adjusting projections is what most industries, businesses, and prognosticators do when events make earlier projections seem overly optimistic or overly pessimistic. I have adjusted my prediction down 15,000 to 80,000 endorsements for the fiscal year ending September 30, 2011. Who knows HUD may have been accurate with their overall projection of only 75,000 endorsements or an over 4% drop in endorsements this fiscal year over last.

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