Has Reverse Mortgage Lender Competition Hit Rock Bottom?

By some measures, yes, it looks like the competition for reverse mortgage lenders has hit bottom. Whether that is a good thing or a bad thing is another story.

Despite the changing landscape for reverse mortgage lenders and the move away from big banks who offer the loans and toward smaller, more specialized companies, the competitive landscape, from a numbers perspective, looks almost just as it did 12 months ago. It is also at the lowest level it has been in more than two years.

It may come as a surprise to some lenders, for which the competition seems tighter than ever before, with some reporting challenges in originating loans today due to struggling home values and new loan requirements for some lenders. But an earlier decline in the number of lenders from more than 1,200 in early 2009 to slightly more than 600, or half as many today is likely due to the business factors like changed loan economics, lower volumes and more regulation, says John Lunde, president and co-founder of Reverse Market Insight.

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“It seems logical that some companies that were active but for whom HECMs were a secondary business area pulled out as their primary business required more attention and/or became less profitable,” Lunde says.

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Source: Reverse Market Insight

The waters are muddied slightly by the fact that the Federal Housing Administration changed its policy for allowing non-FHA-approved brokers to originate Home Equity Conversion Mortgage (HECM) loans in the second quarter of 2010. The number of FHA approved HECM lenders, at less than 300 in December 2011, dropped sharply following that policy change. By RMI’s count, however, the number of originators continues to hover around 600.

That, Lunde says, looks pretty much like the bottom.

Is the lack of competition a good thing? Some say yes, it’s better for business.

“Yes, the business is harder than ever to get loans through,” says John Mitchell, founder of Reverse Mortgage USA. “But there’s a lot less competition, so you take the good with the bad.”

From an overall industry perspective and consumer standpoint, however, getting back to a stable base of lenders is the goal.

“A steady base of active lenders is better than continued declines,” Lunde says, noting that stability preserves price competition and broader distribution and access of reverse mortgages. “For lenders it’s better for the market to keep enough active lenders to retain investor interest and political heft, such as it is.”

Building the lender base up once again will depend on the same factors that are expected to spur industry growth overall.

“The keys would be increased loan volume and increased loan profitability,” Lunde says.

Written by Elizabeth Ecker

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  • But what will it take to get loan volume up?  The missing ingredient is home values.

    It is hard to see how endorsement volume for this fiscal year will exceed 66,000 and most likely it will be less than 60,000.  Based on volume trends in prior years we will need over 6,000 endorsements on average per month for this calendar quarter just to stay on course to get to 60,000 endorsements this fiscal year.

    So if the predictions are realistic, what does that say about the number of FHA approved lenders and TPOs?

  • But what will it take to get loan volume up?  The missing ingredient is home values.

    It is hard to see how endorsement volume for this fiscal year will exceed 66,000 and most likely it will be less than 60,000.  Based on volume trends in prior years we will need over 6,000 endorsements on average per month for this calendar quarter just to stay on course to get to 60,000 endorsements this fiscal year.

    So if the predictions are realistic, what does that say about the number of FHA approved lenders and TPOs?

    • James,You make a very good case. I appreciate you rooting my position on, I hope it happens. I don’t know if we are still using that word(Sales Executive) partner?I have been wanting to call you and lost your contact information. Can you E-Mail it to me at:[email protected]
       
      I know this usualy not the place to go back and forth with private conversations but I don’t think our friend John would mind this one.
       
      Thanks James,John Smaldone

  • James make’s a very good point with his entire comment.

    However, talking about the amount of endorsements we will see this year depends on many factors, not just the amount of players in the market.

    I see a lot less networking in the public arena going on in today’s market place by originators. To much reliance on leads. Sometime the same lead is being hammered by more than one company.I agree 100% about the home values being the major problem but look at the homes that still are F&C or with low balance loans on them. We need to go back to basics, be creative and work harder. This can help the volume woes, maybe not necessarily add new competitors to the market place.I feel their is a greater bank of business out there, we need to go after it. Look at the “Saver”, analyze how we can use that program to reach the more affluent, those with greater equity.Try using the purchase program more than we are. There is a market out there for these programs, this type of business is not going to come to us, we have to go out their and get it ourselves.

    None of these ideas are going to be easy to achieve success with but it can be done. We can pick up volume by being visible in the market place and capitalize on the tools we have available to us and we do have those tools!  Have a great day!John A. Smaldone

    • Hey John,

      I also do not believe the number of lenders and TPOs come into play except to say how many lenders and TPOs can the industry support when endorsement volume is so small? 

      Using the four month rule of thumb from application (or as I firmly believe case number assignment) to endorsement, the last applications which can become endorsements this fiscal year will be taken on or near May 31, 2012.  That gives about 135 days to bring in those extra applications.  Quite frankly based on application numbers through December 31, 2011, there is little way to see more than 66,000 endorsements for this fiscal year while 60,000 is still possible.

      Based on current production and still dropping conversion rates for certified counselees, 58,500 endorsements for this fiscal year seems most realistic.  Right now there is NO trend which gives much hope for higher endorsement numbers.  However, that does not mean that I am not rooting your position on.  I would love to see 85,000 endorsements this fiscal year but that does not mean I believe that number has any realistic chance of being reached.  It is what it is, a wish.

      I still do not see any belief in the market that conversion rates for certified counselees are dropping despite the numbers.  What we are not talking about is one prognosticator making unrealistic predications.  We are talking about historic data coming from HUD.

      What I hear around the industry is that the drop is not the experience of the individual originator.  Not long ago I heard a sales (are we still allowed to use that word?) executive complain that he would be able to help more originators if they would simply say how things are.  I think the same principle holds true here.  Originators like most salespeople want to believe that their production is not dropping due to outside forces such as counseling; they want to believe they are more in control of their prospects and applicants than may be true especially in hard times like NOW.

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