Chart of the Day: New FHA Reverse Mortgage To Reach 20% Share in 2017

Along with its downward revision of all reverse mortgage projections for the coming fiscal year, the Federal Housing Administration presented an outlook for the Home Equity Conversion Mortgage (HECM) Saver that is much more conservative than its early projections for the new product.

The Saver, which launched in October and was initially touted as having the capacity to take 20% of the HECM market, actually saw a yearly average of 5% in its first year—2011. However, the later months in fiscal year 2011 showed the Saver gaining traction at a rate of near 10%—although still a far cry from the initial projections.

Chart: FHA HECM Saver projections

Tags: FHA HECM Saver projections

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Now, FHA, which presented its latest projections in its annual actuarial review of the Mutual Mortgage Insurance Fund and HECM program, sees the Saver not reaching 20% of the market until 2017 (and beyond). The administration projects the Saver will maintain 10% of market share through the coming fiscal year, with roughly 2% gains each year.

Written by Elizabeth Ecker

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  • We all know the four month rule of thumb for applications becoming endorsements.  Since Savers first became available four days into the fiscal year 2011, that means only about eight months of applications are reflected in the 5%.  Using a simple annualization and smoothing technique results in an estimated twelve month rate of about 7% for last fiscal year .

    Without Wells, 10% for fiscal year 2012 seems slightly optimistic.  However, estimating the share of the pie for Savers will increase at 2% per year seems slightly pessimistic.

    I expect to hear cries of a Polyanna outlook but if secondary market acceptance improves, reaching a 25% Saver market share by fiscal 2018 does not seem unrealistic.  It is also seems within the realm of reason  that it could get up to 33% by the end of fiscal 2018.

    With the support of the CFP profession, this product should do well especially as home appreciation begins to recover nationally.  That could start by the end of this calendar year but most likely will not be evident until late summer 2013.  A swift recovery seems highly unlikely.

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