Reverse Mortgage Applications Rise 17%, First Uptick in Months

Reverse mortgage applications rose in February to 6,795 applications, a 17% increase over January applications and marking the first uptick in applications since August 2011 according to data released this week by the Department of Housing and Urban Development.

While the monthly data shows the highest level of applications in three months, year-over-year, February Home Equity Conversion Mortgage (HECM) applications were still down 16.6%, from a total of 8,149 applications in February 2011.

Chart: Reverse Mortgage Application Trends

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The cause for the uptick is difficult to pinpoint, given the absence of lender-specific or regional data, says John Lunde, president and co-founder of Reverse Market Insight. Two potential causes could be former Wells Fargo originators taking longer than expected to drive volume in their new firms, or a shift due to the pullback of MetLife’s financial assessment.

“Both of those would be interesting if we had numbers by firm, but they are both complete speculation in absence of numbers,” he says. “Regardless, very nice to see a bounce after a few very low months for case number issuance.”

Reverse mortgage endorsements remain down roughly 20% from last year, with the HECM Saver seeing continued growth at a near 30% year-over-year increase and more than 350 loans monthly. The HECM for Purchase fell slightly during the month, from 161 loans in January to 132 in February.

Written by Elizabeth Ecker

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  • HECM case number assignments (applications per HUD and the article above) are very, very seasonally sensitive.  Each February for the last five years (data not available before that), HECM case numbers assigned in February have been higher than HECM case numbers assigned in the month before.  It seems the heavily holiday laden month of January takes its toll on the application and counseling process in January.

    The percentage of case numbers assigned through the eight month period ended January 31, 2012 compared to the total case numbers assigned during the same nine month period ended January 31, 2011 was 79.7%.  The percentage of case numbers assigned for the nine month period ended February 29, 2012 compared to that same nine month period ended February 28, 2011 is 80.1%.

    Despite the modest gain in the percentage of case numbers assigned, the pull through rate for certified counselees (“CCs”) has taken a terrible drift down in the last few months of 2011 per recently released HUD data.  For the first time in years (if ever), the percentage of CCs getting HECMs is under 50%.  Clearly none of that has to do with counseling or FIT reports.  This is an increase of over 9% to the overall dropout rate of applications with case numbers in the last few months of 2011.

    Based on actual data for counseling, the significant increase is coming following case number assignment.  HUD seems to believe that much of this downturn has more to do with the better pull through rate of the lenders who left the industry last year than any other cause.  Since endorsements take about four months on average following case number assignment, the drift from this source seems likely.

    Some in counseling and among lenders believe the key reason is the poor pull through rates following counseling at call centers.  If that is true, those rates must be miserable.  HOWEVER, there is absolutely NO credible data available to verify such conclusions; these are just anecdotal impressions.

    The negative downturn in pull through rates has yet to be seen in the annualized average dropout rate for applications with case number assigned.  Based on the data HUD has gathered, we should see that impact soon.

    Again the primary conclusion from all of the analysis is endorsements are still expected to be less than 60,000 for the fiscal year ending September 30, 2012 and based on very preliminary evidence seem headed even lower than previously anticipated, perhaps as low as 55,000.  No one yet knows how much reliance should be placed on the HUD counseling numbers as HUD has stated it cannot provide any assurance on the accuracy of the numbers related to counseling before 2010.  Further clouding the picture is recently released housing data showing housing values are headed still lower at the start of the spring selling season.

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