Is Lower Lender Competition Bad for the Reverse Mortgage Business?

When the reverse mortgage lender pool gets shallower, the volume splash grows smaller, according to the latest Reverse Market Insight HECM Trends report.

Lender consolidation has been one of the biggest trends in the past three years, and the declining loan volume is proportional to the decreasing number of lenders. Whether or not having less lenders is good or bad for the industry hasn’t been proven, says RMI, but one thing’s clear: “lower active lender totals march in lock-step with lower loan volume.”

In the past few years, endorsements have gone down—and so has the number of active lenders.

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Source: Reverse Market Insight, HECM Trends

“What’s striking about the chart is just how correlated the two trends have been,” says the newsletter, going on to note that when the Federal Housing Administration switched from approved brokers to TPOs approved by lenders (which accounts for the gap between the red and blue lines on the chart), “HECM volumes stayed in line with the red line that includes TPOs. This would suggest that the active originators metric including TPOs is more representative of the health of the industry.”

Regionally in terms of endorsement growth, much of the “Sunbelt” and West Coast are trending warm. Out of the top-ten states for endorsement volume, only four have positive year-to-date growth, with Pennsylvania and North Carolina posting double-digit gains. Volume in Florida (#3), Maryland (#8) and tenth-ranked Illinois continues to ebb, however, with all three experiencing declines of more than 21%.

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Written by Alyssa Gerace

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  • I do not believe there is any question about which is the chicken and which the egg.  Without demand, something has to give.  Simply having more lenders does not impact demand by much.

    • I think it depends whether we believe the product is already widely available to create/satisfy demand among potential borrowers.  To play devil’s advocate, perhaps more active lenders would lead to more conversations with more potential borrowers that otherwise wouldn’t consider the product.

      Hard to know which logic is more correct, especially since we hear both perspectives regularly from originators.

  • I do not see how lower lender competition could greatly affect the loan volume. The location of the property and the volume of prospected buyers are big factors that could forecast the volume of loans applied.

    • Lynne,

      If the market is saturated, your statement is right.  If the market has too little marketing and too few originators in areas of the country, then there is room to expand with more originators and more marketing.  With fewer than 5,000 endorsements per month and the loss of the two players which controlled over 40% of the market over most of the last few years, it is hard to evaluate what it is true.

  • It would be great if we could track loan officers directly, as I agree that would be even more directly relevant.  In absence of that, we think active companies has been a decent proxy for that.

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