FHA Reverse Mortgages Down Slightly During First Quarter says Report

The decision to increase the annual insurance premium for the Federal Housing Administration’s HECM program hasn’t had any measurable effect on the number of loans endorsed according to a report from FHA.

During the first quarter of fiscal year 2011, the industry endorsed 18,387 reverse mortgages with max claim amount of $4.6 billion, down 0.5% from the previous quarter.

“Endorsement counts and dollar volumes were down just slightly from the previous quarter, though they were again down substantially from the year-earlier period,” said the report. “Applications for HECM loans in the quarter suggest that endorsements in FY 2011 Q2 should be close to the level of FY 2011 Q1.”

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The credit subsidy rate for reverse mortgages endorsed during FY 2011 rose from -0.50% to 0.00%, providing no funds to be added to the capital reserve account for new loan guarantees.  New premium revenues were offset by the potential cost of claims on loans where the borrowers stop paying required property charges and new research that shows expected home-value appreciation for seniors can be less than average expectations for an entire housing market.

FHA endorsed 371,310 forward loans during the quarter, bringing total volume of new insurance up to $72.1 billion, up from the $71.4 billion from the previous quarter. The agency said it expects insurance volumes to decline as loan originations fell throughout the quarter.

“The overall dollar volume of loans originated for FHA insurance in the quarter was down 33% compared with the year-earlier period, with a 44% decline in home-purchase loan originations and a 16% decline in refinance originations,” said the report.  “These product-level changes are in-line with other estimates of overall, national mortgage origination activity for the quarter.”

The year-over-year decline in total origination volume for FHA was larger than that for the overall market (33% vs. 24%) because home purchase loans are a greater share of FHA activity than they are for the overall market.

View a copy of the report here.

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  • The FHA Single Family Outlook report for February 2011 was just released. Again we will use the term “FHA Case Number assignments” in place of the applications as used in the report.

    To understand endorsements it is critical one understands the FHA Case Number assignment cycle. I hypothetically use a fiscal year of June 1, 2010 to May 31, 2011 as the fiscal year of FHA Case Number assignments which will make up the HECMs endorsed by HUD during the fiscal year ending September 30, 2011, calling the June to May period the “farming season.”

    Looking at the Case Numbers generated so far in this farming season, we are running about 3,000 less than last year or 84,500 to 81,500. To arrive at the same application numbers for both farming seasons we need at least 27,000 additional case number assignments from March 1, 2011 to May 31, 2011. However, the next question which arises is whether the theoretical pull throw rate will be greater or less than last year.

    The pull through rate is the number of HECMs endorsed in a fiscal year divided by the case number assignments during the farming season related to the fiscal year of endorsement. Last year that rate was 72.6%. Since there are so many factors which impact the theoretical pull through rate, it is normally measured at the end of each endorsement fiscal year end. We do not have sufficient information to separate out the pull through rate by category but that would an interesting set of stats. While endorsements for HECMs for Purchase are only 568 so far this fiscal year, Saver endorsements have jumped to 555 (just 13 less). Significant Saver endorsements also mean that when looking at total endorsements one must subtract out Saver numbers in order to see how HECM Standards are faring when compared to HECM Traditionals last fiscal year.

    While Case Number assignments look better for this last farming season quarter when compared to last, it is the final quarter ending May 31, 2011 where we will either gain the necessary assignments or actually experience a worse endorsement fiscal year than we did last. To get to even, lenders will have to get at least 1,000 more assignments per month than they did for the same months last farming season. If the pull through rate is worse for this endorsement year than last, we will need significantly more assignments than the 1,000 per month previously discussed.

  • Having gotten tired of all of the discussion about whether the word application means application or FHA Case Number assignments when discussing HECMs in the FHA Single Family Outlook report, I contacted Dan Mooney at HUD. Although he is not familiar with the FHA Single Family Outlook report per se, he knows of no way that FHA could gather any data on application numbers. It is his conclusion that the application numbers in the report are FHA Case Number Assignments as did The_Cynic and many of us who are somewhat familiar with the data FHA and HUD gathers.

    So unless someone has contrary information from a better source, it seems when FHA speaks of applications in its Single Family Outlook it is in fact FHA Case Number assignments occurring during the month as was indicated in the November 2010 edition.

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