Applications Rise Slightly in December, First Look at HECM Saver Data

The number of reverse mortgage applications rose 0.6% in December, coming in at 8,270 units according to the Federal Housing Administration.

Application volume remains consistent for fiscal year 2011, but is up 19.4% compared to December 2009.

During the month, there was 6,554 reverse mortgages endorsed with a max claim of $1.7 billion, down 0.1% from November.  Overall endorsement characteristics stayed relatively flat except for the adjustable rate HECMs which increased 11.9% for the traditional product, 40% for the HECM for purchase, and the number of refis for ARMs increased 34.9%.

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But the most interesting news comes in the form of HECM Saver endorsements, which came in at 75 units during December.  It’s the first time FHA has broken out the data and it’s more than the 19 HECM Saver endorsements from November.  While the numbers are nothing huge, the product was released in October, so the number of units endorsed —which are typically a few months behind from the closing date — out of the gate was expected to be small.

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In total, FHA endorsed 133,603 mortgages in December, which included 66,165 purchase money mortgages, of which 48,539 were for first time home buyers.  December ended with 598,140 mortgages in serious default, yielding a default rate of 8.8 percent according to FHA.

So far this fiscal year, FHA has paid 87,827 claims, 58,032 were loss mitigation retention transactions, 24,004 conveyance cases and the rest were miscellaneous other type claims.

To view a copy of the report, see here.

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  • This is some of the worst endorsement year-to-date news yet. For the first quarter of this fiscal year (the fiscal quarter ended December 31, 2010), endorsement totals are down over 25% from the pitiful total for last year (about 18,400 endorsements this fiscal quarter compared to about 24,800 for the same fiscal quarter last fiscal year). FHA Case Number assignment volume for the seven month period ended December 31, 2010 is down over 8% when compared to the same seven month total last year (or about 65,950 this period compared to about 72,100 for the seven month ended December 31, 2009).

    Last fiscal year the pull through rate industry wide of FHA Case Number assignment to endorsement was about 72.6%. While it appears the rate is lower for the seven month period ended December 31, 2010, that type of analysis is far beyond the scope of this simple comment.

    The high HECM endorsement talk of today is far LESS irresponsible than the projections we heard during late 2006 and early 2007. The projections about proprietary mortgages were so extreme in that period that when asked about it on a NRMLA speakers’ podium, FHA Commission Brian Montgomery rolled his eyes before saying that FHA would love to be in a position where proprietary products were the dominant products in the reverse mortgage marketplace by the end of the decade. The Commissioner was being nice as the projections were far more ridiculous than his statement indicates.

    Endorsement projections must be based on projected FHA Case Number volume and significant trends. What trends are indicating overall endorsement growth? Home values nationwide will not be substantially higher before June 1, 2011. So what trends are indicating this overall endorsement growth? Where else will HECM endorsements come from? With an alleged four month lag from Case Number assignment to endorsement, there are just five months left to see FHA Case Number totals get high enough to support what must now begin to be called less than rational endorsement projections for the current fiscal year. FHA got it right in 2006 and 2007 and seems to have a better handle on the situation today with their official estimate to Congress of only 75,000 endorsements for the current fiscal year. The industry and several speakers at the latest NRMLA Convention ignored this projection.

    Sales management will hate this comment as will speculators. My question remains the same: Where is the higher endorsement volume going to come from? I will now add another question: When will we see any evidence that it is even coming? It is great to rally the troops with inflated projections but it also gets old and brings into question other statements made by those who use such “puff” to reach the conclusions they desire.

    I ask that those who are making the projection of 95,000 (AND MORE) total HECM endorsements for the fiscal year ending September 30, 2011 simply explain why those numbers are nothing more than “irrational exuberance” at this point in time. (By the way the request for an explanation did not begin today.) At this point these wild projections are far more than mere optimism; they are becoming Pollyannaism. My request for an explanation is far worse than a call to cynicism (as one of the prognosticators implied on his website) — it is a call to be optimistically realistic.

  • I was personally anticipating closing more HECMs this year due to three factors, and still haven’t given up hope of achieving that goal. The first factor is the large number of “Boomers” becoming eligible for a reverse mortgage (I’ve heard 10,000 Boomers will turn 62 every day for the next 10 years). Second is the inability of most retirees to qualify for a refinance or regular equity line due to tighter lending requirements, leaving reverse mortgages as their best option to pull equity out of their home. And the third item is the hit on their retirement savings due to the economic downturn, which would make more retirees look at using their home’s equity (which might be considered a renewable resource in a normal appreciating housing market).
    About 2% of the Boomers turning 62 equals 75,000 endorsements, and that doesn’t include all of the existing eligible borrowers. The market is there, the conditions are favorable for our product, so I’m looking forward to better times this year.

    • mrreverse,

      Your focus is on individual production and that is good. While there is nothing wrong with that, it does not speak to overall industry concerns. It is great you have the outlook you do. We all need an optimistic view of the future or we had better be looking at changing what we will be doing in the future.

      Your first statement is not correct but is fairly accurate. Your second is not solid. How many of those who cannot qualify for other loans will qualify for a HECM and even if they do, how many will get one? Your third point is OK.

      It is the reasoning in your last paragraph that is very questionable. We are now entering into our fourth year of boomers arriving into qualifying based solely on age. The first three waves did not produce anything close to 75,000 endorsements upon their entry. While it is very true that the younger seniors are making up the largest segment of new borrowers, it is no where close to that magnitude. Yes, over this and the following 15 years each new wave is very likely to bring in well over 75,000 HECM endorsements but that the production per wave will be spread out over about five decades with the majority of it frontloaded.

      The need among seniors has rarely been bigger and the US senior population has never been larger but today the single biggest factor holding up new origination is home values. If home values were going up high enough, our businesses would be overflowing with new applications and endorsements. Until that turns around, personal production by some will be excellent but by most less than average when compared to prior years.

      The only per unit number that seems to be going up now days is the loans per lender since so many brokers have dropped out of the market. The proof is that the numerator of that ratio has not gone up and the denominator has shrunk far worse than the numerator on a percentage basis. Despite what others say, that is not a healthy indicator for the market; it is generally one of a dying industry. While I do not believe that this is the case, it is nonetheless a definite mark of such situations.

    • mrreverse,

      Your focus is on individual production and that is good. While there is nothing wrong with that, it does not speak to overall industry concerns. It is great you have the outlook you do. We all need an optimistic view of the future or we had better be looking at changing what we will be doing in the future.

      Your first statement is not correct but is fairly accurate. Your second is not solid. How many of those who cannot qualify for other loans will qualify for a HECM and even if they do, how many will get one? Your third point is OK.

      It is the reasoning in your last paragraph that is very questionable. We are now entering into our fourth year of boomers arriving into qualifying based solely on age. The first three waves did not produce anything close to 75,000 endorsements upon their entry. While it is very true that the younger seniors are making up the largest segment of new borrowers, it is no where close to that magnitude. Yes, over this and the following 15 years each new wave is very likely to bring in well over 75,000 HECM endorsements but that the production per wave will be spread out over about five decades with the majority of it frontloaded.

      The need among seniors has rarely been bigger and the US senior population has never been larger but today the single biggest factor holding up new origination is home values. If home values were going up high enough, our businesses would be overflowing with new applications and endorsements. Until that turns around, personal production by some will be excellent but by most less than average when compared to prior years.

      The only per unit number that seems to be going up now days is the loans per lender since so many brokers have dropped out of the market. The proof is that the numerator of that ratio has not gone up and the denominator has shrunk far worse than the numerator on a percentage basis. Despite what others say, that is not a healthy indicator for the market; it is generally one of a dying industry. While I do not believe that this is the case, it is nonetheless a definite mark of such situations.

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