When Home Values Stop Falling, So Will Reverse Mortgage Volume

While the number of baby boomers turning 65 grows at 10,000 per day according to AARP, the growth of reverse mortgages hasn’t followed the soaring number of older Americans during the last couple of years.

After growing from 157 units in 1990 to 114,692 during fiscal year 2009, the industry has seen volume decline for the first time. In 2010, lenders endorsed 79,106 units during the fiscal year and 73,131 in 2011 according to data from the Department of Housing and Urban Development. Some say better times may be just around the corner, but a lot of that improvement hinges on home values.

“[The growth of reverse mortgages] is really dependent on the amount of equity a borrower has in their home,” said Scott Stern, CEO of Lenders One, a national alliance of mortgage bankers based out of St. Louis, Mo. “As the amount of equity a senior homeowner has deteriorates, so does the value of reverse mortgages.”

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According to data from CoreLogic, home prices fell 4.7% nationwide in 2011 and no one is expecting any drastic increases in 2012. However, there are some reasons to be optimistic.

“The time is right in 2012 for prices to begin growing again and housing affordability will put a floor under any further significant declines in 2012,” according to CoreLogic’s MarketPulse report published in December 2012. “Indications based on the latter part of 2011 are that both the broad economy and the housing market are moving toward positive growth in 2012.”

Assuming that trend happens during the next year, “2012 and 2013 will provide a good marketplace [for the industry] and an encouraging time for companies who are looking to get into the space,”
says Stern.

But even with demographics in the industry’s corner and the possibility of home values bottoming out, there are still changes getting people into the business according to industry participants.

“If you’re going to do reverse mortgages, it must be done as a specialty,” he says. “You can’t do it as just an offshoot of the mortgage business. It does take a commitment of time, resources and money,” says Stern.

Of roughly 200 Lenders One members, Stern said about a quarter of them are doing substantiative reverse mortgage volume. “The members we work with who have committed the time and energy have found it can be a very good business.”

“Overall, I’m bullish on the [reverse mortgage] space,” he says, “anyone who is committed to the business could do very well in the next five years.”

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  • What the last three years have taught is that home appreciation is far more critical to endorsement growth than an explosion in the senior population.  Despite the ongoing population explosion, our current rate of endorsements is less than half of what it was for the fiscal year ended September 30, 2009.

    Over the last three years, we have been hearing that better endorsement numbers are just around the corner.  It is hard to believe that minimal home appreciation rates will magically turn around endorsement volumes even when they do come.

    It is expected by those in the housing industry that the current opening of the floodgates of foreclosures will bloat the current inventory of homes for sale for more than twelve months if not much longer resulting in even lower home prices in most of the country.  It seems as if the only way that the national home appreciation rate will increase within the next six months and result in higher applications which will become endorsements in this calendar year is if the Administration somehow closes those floodgates.  How the endorsement picture will improve this fiscal year seems more the stuff of marketing dreams than reasoned analysis.

    To get home values up will require the reversal of the current high unemployment rates, more lenient home mortgage lending standards, and the addition of higher paying jobs.  The homeowner affordability index is still very, very good but what has been clearly proven is that a good reading in that index alone is no harbinger of a boom in home sales.

    Stirring up the originator corps with vain calls of higher endorsements with no foundation for such calls is not just counterproductive but could prove harmful.  17 months ago we heard calls that endorsements would be in excess of 100,000 last fiscal and calendar year.  Both calls fell short of the actual numbers which were even less than that of the prior fiscal year. There is no indication that the downward trend will turn around in this fiscal year and no significant sign the endorsement volume for the calendar year will be much better.  This is yet another time, I wish my predictions would prove wrong.

  • I think its just a matter of time as well, we’re seeing some very unique usages for reverse here lately.  Three most recent requests were for money to purchase property (land) and a farm where the price was too good to pass up, so good in fact that 2 of the borrowers said closing costs weren’t a consideration because the reverse got them more money than any lender would provide.  The economy is opening up more ways to utilize this product, by folks that most would never have considered. 

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