HECM Applications Show Slight Uptick in May, Saver Continues Decline

The Federal Housing Administration recorded a slight increase in HECM applications in May, while endorsement data for the month showed a small decrease in HECM Saver endorsements, according to FHA’s Single-Family Housing Outlook.

HECM applications increased 1.4% to 7,473 applications in May, up from 7,371 applications in April (see chart), but still trailed May 2010 applications by more than 10%.

The HECM Saver saw its second monthly decline, falling 6.9% from its April total to 365 endorsements in May. Total endorsements were down 15.3% in May.

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Chart: Reverse Mortgage Application Trends

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Reverse Mortgage Application Trends

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To date, FHA has received 63,963 HECM applications in fiscal year 2011, ending Sept. 30, and continues to project the total number to reach 80,000 for fiscal year 2011.

Written by Elizabeth Ecker

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  • The HUD estimate of 80,000 applications for this fiscal year seems spurious, particularly in light of the HUD estimate of 75,000 endorsements for both this fiscal year and next. 

    HUD knows to get to 75,000 endorsements, at least 100,000 applications must receive case numbers during the 12 month period ended May 31 which also ends in the fiscal year of endorsement.  For example, the HECMs endorsed in the fiscal year ending September 30, 2011 will have generally received their case numbers in the twelve month period which ended May 31, 2011.  The reason why this is generally believed to be true is because of what is called the fourth month lag between receipt of a case number and becoming endorsed. 

    The HUD 80,000 application estimate was made no later than mid November 2010.  The estimate does not seem to reflect any significant change in HECM rules for the fiscal year which begins on October 1, 2011.  For the last two years, such actual and presumed changes have caused significant peaks in origination volume in September as indicated in the graph above.
     
    If there is no change in the lending limit, perhaps the 80,000 estimate has justification but HUD knew the lending limit is due to change this September 30 when this estimate was made last year.  Generally such changes result in volume peaks near fiscal year end.
     
    Based on current trends and reflecting no peak at fiscal year end, the application volume for the twelve months ending September 30, 2011 would seem to be much closer to 90,000 than 80,000.  If a peak comes, applications could go to 100,000.  Of course endorsement volume from 100,000 applications using the conversion rate from last fiscal year would be less than 75,000.

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