Wells Fargo Exit Takes Big Bite Out of Reverse Mortgage Volume

The reverse mortgage industry doesn’t seem to be making up lost ground from Bank of America and Wells Fargo’s exits, evidenced by a 16.8% decline in home equity conversion mortgage (HECM) endorsements in October 2011, according to Reverse Market Insight’s most recent HECM Lenders newsletter.

The aftershock of Wells’ exit has arrived, as endorsements dropped to 4,653 in October—the lowest total since the industry bottomed out in May 2010 from the first principal limit reductions, says RMI.

MetLife endorsed the most loans in October with 913, nudging Wells Fargo into second place with 787.

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That’s probably more bad news than good, though, says RMI.

“We’re almost sure to break last year’s bottom next month as Wells volume declines further, and if other lenders can’t pick up some of the loans Wells isn’t doing, we could be looking all the way back to July 2005 for the last time monthly endorsements were under 4,000,” says the newsletter.

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Source: Reverse Market Insight, October 2011 HECM Lenders

Even more surprising than Wells’ decline, says RMI, is the “relative weakness” of several other lenders in October, as MetLife Bank, Urban Financial Group, Generation Mortgage Company, and Security One Lending all saw negative endorsement numbers.

“The aggregate decline of these five lenders is slightly larger than the total industry decline, while One Reverse, Genworth, AAG, and Reverse Mortgage USA helped stem the tide,” RMI notes.

View the October 2011 HECM Lenders newsletter here.

Written by Alyssa Gerace

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  • My take on the drop is much different. Both Mr. Lunde and I agree that we expected a 20% decline in endorsements this fiscal year due to the loss of the branch system of Wells and B of A. As to the endorsement numbers by lender, I expect to see a lot of jockeying in endorsement numbers for the next six months or so. The industry has a lot of sorting out to do before things have clarity.

    What is surprising is the the continued erosion in the conversion rate from case number assignment to endorsement.  On a rolling twelve month total basis, the rate has dropped once again and is on the verge of dropping below 69%.  If this was a simple aberration that would be one thing but this is a continuing trend.  It is quite alarming especially when tied to the analysis of the overall dropout rate in qualified counselees.

    The other day NCOA excused the overall qualified counselee dropout rate in a RMD comment by saying the dropout rate shows FIT is doing its job but that point was being made about a mortgage with an historic approval rate of over 90%. That is also a very convenient change in position.  At the NRMLA Roadshow in Irvine in the summer of 2010, the justification for FIT in particular was that NCOA had clearly demonstrated that its results would not deter qualified counselees from getting HECMs as much as it would reinforce their decision.  At this point, actual practice has proved the justification to be groundless.  The dropout rate has steadily risen and seems to have no ceiling at this point.

    Another interesting point is that the total number of HECM applications receiving case number assignments between June 1, 2011 and September 30, 2011 was less than 32,000.  That is over 23% lower than the year before and almost 40% lower than the year before that.  This inventory is the basic inventory from which endorsements will come between October 1, 2011 and January 31, 2012.  That says that during the first third of this year we should expect endorsement totals to be down about 23% over the same four month period last year.  If the dropout rate stays at the present level or increases, endorsements will be lower yet.

    Few if any of the applications receiving case number assignments through the end of September should reflect lender financial assessment.  That should give a working baseline to see how lender financial assessment is impacting endorsements for the last eight months of this fiscal year.  One giant caveat has to be made, however.  We many need to adjust the numbers for the continuing increase in the counseling portion of the dropout rate.

    While long-term projections are a tricky business in our industry, last year clearly demonstrated three and four month projections of endorsements can currently be done reasonably well.  The one thing which is clearly becoming more and more of a problem is FIT scoring and its results report.  Even counselors are questioning their value.  Some originators are beginning to refer to them as terribly misleading.

  • My first comment as it relates to declination by lenders based on financial assessment underwriting has a glaring error.  Two points need to be made: 

    First, if financial assessment occurs before case number assignment, declination or application withdrawal could occur before counseling if counseling is not taken first.  In that case no information would be available since nothing is reported to HUD before counseling occurs. 

    Second, unless HUD gathers information on declinations, any analysis on that basis will have to be determined on a sampling basis or conjecture.

    In a very real and practice sense, unless HUD changes reporting requirements, lender declination information will either be nonexistent, have to be gathered by another source such as NRMLA, or be estimated.  We will have to see how this plays out.  How we move forward on this issue will have a lot to do with the demand of HUD or the lenders for such information.

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