Reverse Mortgages Minus Big Banks, Where are We Now?

The reverse mortgage business looks very different from how it was a year ago. As the anniversary of Bank of America’s exit came and went in February and Wells Fargo’s one-year departure date approaches in June, the industry has seen volume fall—substantially in some months—to what many have decided will be a much lower volume level than in years past.

Just how much industry volume is down: about 27.5%. But how much is attributable to those exits is a slightly different story.

Bank of American and Wells Fargo previously comprised 36.6% of retail volume, according to Reverse Market Insight data. Today’s volume only recovers roughly a quarter of that loss, from a strict numbers comparison.


It’s not just the big bank exits that have led to a decline in volume, says John Lunde, RMI president and co-founder.

“It’s tough to know exactly, but there are really only a couple of options. Either people left the industry who were generating that volume, or we’re seeing the loss of distribution networks that would have made referrals, like bank branches, mortgage branches or wealth advisors. Or, there’s the brand perspective or whatever marketing those companies were doing.”

The bank exits spurred a kind of musical chairs for employment with originators and brokers taking business from one lender to another. The effect on volume should be minimal at this point, Lunde says.

Projections from several sources including the Federal Housing Administration and RMI place 2012 volume below 2011, with RMI’s estimate likely below 60,000. Several industry executives from MetLife, Genworth Financial Home Equity Access and Urban Financial Group estimated in March that volume in the range of 100,000 loans annually is likely at least two years away.

But despite the loss of the two largest lenders and volume being down more than a quarter year-over-year, lender sentiment remains fairly positive, Lunde says. Some lenders have seen record monthly volume in 2012 with growth in the double—and even triple—digits.

“From an individual company perspective, it has been a growth story since the first quarter of 2010. Lender exits just helped that growth story,” he says. “Add to that the fact that secondary market premiums have been healthy and there is a lot to like.”

Written by Elizabeth Ecker

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  • Elizabeth,

    I do not subscribe to the dire information I am reading.  

    Things are not currently as bad as being indicated.  The current estimated inventory of applications with case numbers assigned is down about 20% as of February 29, 2012 over that estimated inventory level as of February 28, 2011.  The total of endorsements on a 12 month trailing total as of March 31, 2012 is down about 15% of what it was as of September 30, 2011.

    Yes, I believe that the total for the fiscal year will be about 58,500 but to be down by 27.5% means the total endorsement volume for this fiscal year will be less than 53,000.  While that is possible, it seems overly pessimistic.

    As of the third quarter of fiscal 2011 just two were openly predicting we would see about 60,000 endorsements for the fiscal year 2012 and that this fiscal year would be hailed as the year of the lender.  So far both of those predictions are panning out.

    Other than FHA, The Cynic, and myself, I am not aware of anyone who was openly making endorsement volume predictions for this fiscal year in the third quarter of fiscal year 2011.  FHA has drastically reduced its prediction and it seems others are just now entering into the fray.

    11 months ago many wondered how anyone in their right mind could call this fiscal year, the year of the lender and at the same time predict that total endorsement volume could be 60,000 or less. History trumps predictions and we will soon see history being made. Like weathermen projections on endorsement volume have a way of proving wrong so I am not quite ready to declare either prediction correct quite yet.

    I am very concerned about the trend in the conversion or as some call it “the pull through” rate but that trend is getting worse with time.  To hear and see HUD declaring that the actual conversion rate of certified counselees getting HECMs is under 50% should be disturbing to all of us who are concerned about our industry.

    Based on the trends HUD is indicating, I have a very deep concern for the endorsement volume for next fiscal year.  And, yes, as of today I am predicting that the fiscal year ending September 30, 2013 will NOT be the year of the lender.  Where endorsement volume will be for fiscal 2013 is too early to project.  Could it be 25% higher than the total for this fiscal year?  While that volume would be easy to obtain in a different environment, right now, the answer is “no.”

    • I should clarify that the estimate for <60,000 is on a calendar year basis rather than fiscal.

      With respect to individual lender perspectives, it seems reasonable that increased volume for many lenders due to reduced competition along with healthy secondary market premiums make for a good business result.

      • Mr. Lunde,

        I try to stay away from wild and irrational predictions. Like last fiscal year, I simply could not understand the odd predictions being made at the New Orleans NRMLA annual convention.  To read that a speaker was declaring that we would be at 100,000 endorsements for that year defied all logic based on factual information and trends.  It reminded one of the proprietary reverse mortgage claims that were being made in 2007 and even early 2008.  If those claims were true, HECMs would be less than 20% of all reverse mortgage originations today.  Guess what!!!

        The predictions made at the NRMLA Eastern Conference this year in NYC were far more reasoned and not excessively out of touch with facts and trends.  A little optimism is great!!!  Excessive optimism verges on the Greenspan concept of “irrational exuberance.”

        Without sufficient data it is difficult to intelligently discuss endorsement totals for the calendar year 2012 BUT if recent fiscal year trends hold water, then the calendar year 2012 will have a lower endorsement total than the fiscal year 2012 which definitely seems headed for less than 60,000 total endorsements.  That especially seems true with the lack of any significant increase in home values so far this spring and recent comments by HUD on the drop in the pull through rate and why.

        Labeling the current fiscal year, the year of the lender, was as easy as you present it.  It is just a question of when that prediction was made.  Saying it now is easy; predicting it 11 months ago had risk few would take.  At the time there was general fear about the very existence of the industry; that was one reason for declaring it as the year of the lender, even before the fiscal year started.  Even CPAs want to be optimistic despite what some people think.

  • HECM volume is down because of higher LTV’s caused by declinging home valuations heaped on top of dramatically increased compliance and regulatory burden which resulted in the elimination of countless small independent brokers.  The decline in volume has absolutely nothing to do with the departure of Wells Fargo or Bank of America.

    • hecms1991,

      If anything as to HECMs and brokers, Ms. Ecker provides a differing picture in her RMD article yesterday titled:  “Brokers Pick Up the Slack, Wholesale Reverse Mortgage Volume Up 15%.”  That article and the related graph clearly show that as to HECM originations, TPOs are doing well this fiscal year.  

      Can you please offer objective evidence for your conclusions as to brokers?   

      No doubt some loss is due to declining home values and more conservative appraisal practices but that impact seems to be minimal.  Home values for the last six months is a mixed bag of results based purely on three traditional sources:  location, location, and location.  Some areas have actually experienced home value increases.  

      As to the impact of the loss of B of A and WF this fiscal year, my prediction about the low level of endorsements was based entirely on that source.  Other influences on the endorsement level seemed to cancel each other out.  In fact the increase in originations by brokers clearly says I understated the impact of the loss of B of A and WF on the number of originations this fiscal year.

  • Mr. Benjamin,

    Regulation seems to have little to do with the origination decline of recent years.  The RMD article Ms. Ecker wrote which was posted  yesterday on the rise in broker originations this fiscal year titled “Brokers Pick Up the Slack, Wholesale Reverse Mortgage Volume Up 15%.” dispels some of that misinformation.

    What is more troubling is the trend seen in the very recent Met Life Mature Market Institute Study discussed in the RMD article written by Ms. Gerace titled “MetLife: Retiring Boomers Aren’t Moving; 12%
    Would Consider a Reverse Mortgage” and posted two days, April 9th.
     In the article Ms. Gerace states:  “Although very few of the survey boomers, at just 2%, have either used or plan to use a reverse mortgage at some point in the future, another 12% are willing to consider the option, while 4% are unsure. However, the number willing to consider getting a reverse mortgage has gone down from 18% in 2008.”

    Why is interest in reverse mortgages dropping as reported?  To be clear it could be problems with the science in the survey.  It could be the difference in questions between the two surveys.  But the point is no matter what the source, a one-third drop in interest in reverse mortgages is startling.

    Yes, I agree the Big Two have left a hole none can fill unless they come back into the industry.  The loss from the branch referral system at those two particular banks could be permanent; however, that does not mean we cannot continue to grow as an industry.  Seeing a one-third drop in interest about reverse mortgages is an entirely different matter.

    The MetLife Mature Market Institute could definitely help our industry by determining why the drop in interest is occurring.   

    • Since 2009 we have seen the downward because of multiple sequential events:downturn in the economy which resulted in lower home values, an over reaction from HUD in estimation of the health of the hecm program in relation to the MMI fund and the devasting effectsfor BoA as a result of the CW purchase and its associated losses plus of course the exit of Wells and the demise of Financial Freedom after the Indymac failure and take over by One West. In any industry where the top 3 players with the largest footprints exit you will always see a decline. The question is how long ? Although a tremendous amount of seniors are turning 62 , it is clear that the debt service of this generation is higher than ever and couple with the home declines results in a higher percentage of ineligible borrowers.

      • Mr. Torres,

        Yet fiscal year 2009 was the largest year for endorsements in the history of the industry. 

        How did HUD overreact regarding MMI?  That statement clearly does not match the position of New View Advisors.  Since the MMI is based on terminations, where are assumptions wrong?  Please explain.

        You explain the loss of the Big Three except Wells.  Why????

        What stats demonstrate the debt servicing problem of Boomers you present?  In raw numbers, have the ranks of those who less problems with debt servicing diminished?  What does debt servicing have to do with HECM qualification other than at MetLife for a short period of time?  

      • Quite frankly I loose me as to why you always have trouble understanding what others are saying. If you dont understand that the reduction in PL a couple years ago which in turned and in conjuction with the decrease in home valuation in key traditional markets such as FL and CA plus the reduction in footprint from BoA,wells and FF are the main culprits in the down trend in endorsements which I predicted a while back in addressing your comments in this very forum then there is not much else I can explain to you. The endorsement data supports is clear proof. The seniors who are becoming eligible now have a higher debt compare to the current values of their home because many of the young seniors age 61-63 took advantage of the high ltv financing and relax underwriting between 2002-2008. Like I had said before do your own research instead of asking questions. Have you asked yourself whats the margin of error in that Metlife study, what sample size and the associated geographical distribution of the sample, plus are they comparing same population profile between the older and the new study??

  • This has been very interesting. I see very good comments and a lot of varied reasons and opinions for the drop in the reverse mortgage industry and predictions being made.

    Let’s face it, the drop in values have contributed greatly to the drop in volume. We see more fall outs today because of it. Lets not overlook many other changes, counseling for one. I have seen many seniors changing their minds after they take the counseling.

    The change in the adjustment to the principle limit has not helped. Another area I feel has discouraged seniors from taking out a reverse mortgage is the attitudes of many new originators in the industry with  the wrong reasons for being in the business.

    I ran into a prospective borrower who was very disillusioned with a loan officer she was talking to. The senior had a lot of equity in her home and was looking for a security blanket in a reverse mortgage. The loan officer was doing everything but forcing the senior to go to a fixed rate loan and take a lump sum. That is NOT what the senior wanted or needed. Consequently she walked away. I feel I have brought her back to the table with the right product to fit her needs.

    The point I am making is that there are many other reasons why volume is down, rather than some of the reasons I am seeing here. Our business has changed, times have changed but our mind set and passion for our seniors should never change!

    John A. Smaldone

    • John,

      Other than the drop in home values, the information you provide is anecdotal and speaks of the reasons for the dropout rate, not the substantial drop in the interest among seniors about HECMs which the MLMMI study is reporting.

      What has caused the measured interest among seniors towards reverse mortgages to drop so dramatically since 2008?  

  • Mr. Torres,

    With remarks like “Quite frankly I loose me as to why you always have trouble understanding what others are saying,” it is difficult just trying to piece together what you write sometimes.  Then I must try to understand it.  What do you mean by “I loose me?”  I am probably wrong but I assume you mean, “you lose me.”

    I had no idea what you meant in your first response (since you only have responses in this thread, no original comments) when you said: “…an over reaction from HUD in estimation of the health of the hecm program in relation to the MMI fund….”  That sounded like you meant an overreaction in estimating, not an overreaction in the way HUD adjusted the program.  You never clarified in that first response that you were referring to lower Principal Limit Factors and higher ongoing MIP of 1.25%.

    Then when you were asked:  “How did HUD overreact regarding MMI?”  you turn it into a personal attack by responding:  “If you dont understand that the reduction in PL a couple years ago which in turned and in conjuction with….”  

    You may believe that HUD overreacted in decreasing PLFs and increasing the ongoing MIP, but I do not as clearly reflected in a 10/7/2009 RMD article I wrote titled “Reverse Mortgage Industry, Don’t Blame HUD.”  Yes, I strongly believe the HUD actions led to lower endorsement totals for the fiscal year 2010 but I also believe HUD did much behind the scenes to try to avoid further negative modification to HECMs as disclosed in the independent auditors and actuarial reports for the fiscal years 2010 and 2011.  In those two fiscal years, HUD transferred over $2.2 billion from the capital reserve portion of the MMI fund to the HECM portion of that fund in order to avoid additional PLF reductions and any further increase to the ongoing MIP.

    Since I do not memorize the location or contents of your comments, can you advise where you “…predicted a while back in addressing your comments in this very forum”?  And of course you have to attack by adding:  “… then there is not much else I can explain to you.”   

    On yet another subject you write in your first response to me:  “Although a tremendous amount of seniors are turning 62 , it is clear that the debt service of this generation is higher than ever….”  When asked:  “What stats demonstrate the debt servicing problem of Boomers you present?  In raw numbers, have the ranks of those who have less problems with debt servicing diminished?  What does debt servicing have to do with HECM qualification other than at MetLife for a short period of time?”  You reply:  ” The endorsement data supports is clear proof. The seniors who are becoming eligible now have a higher debt compare to the current values of their home because many of the young seniors age 61-63 took advantage of the high ltv financing and relax underwriting between 2002-2008.”  AND of course you had to add:  “Like I had said before do your own research instead of asking questions.”  And of course you never cite where you made that prior admonition.  

    To be clear it is higher LTV borrowing in the time period you indicated which resulted in many Boomers not being eligible when they turned 62, not higher debt service.  For many higher debt servicing resulted from  adjustments to teaser rates which could not be refinanced at those rates as promised by some loan officers.  If the problem was only higher debt service as your first response claimed, a HECM might solve that problem but higher LTV mortgage borrowing resulted in many Boomers having insufficient equity to qualify for a HECM without some kind of pay down on their existing mortgage(s).  Your first response was about cash flow; your second response was about equity.  It seems when you are caught in poor reasoning you attack the person who asks about it.  Why?

    Many times I agree with your conclusions but NOT your initial rationale; so I write what is generally referred to as a concurring response.  Sometimes I agree with your rationale but not your conclusion; so I write what is generally referred to as a dissenting response.  Then there are times, I cannot agree with most of what you write and respond in disagreement.  Is there anything wrong with concurring with, dissenting from, or disagreeing with YOUR conclusions or rationales?  It seems you fully resent it and attack those who question what you write.

    If you have done the research to reach the conclusions you do, what is wrong with asking you for that information?  No one likes to explain themselves, but if you read my articles, I try to provide the basis for my rationales and conclusions upfront.  Maybe I should not expect the same from you?  Is that what you are stating through all your “digs”?  

    Have a great weekend!!!

  • Mr. Torres,

    First I am NOT discussing and will not debate HECM budget calculations, theories, algorithms, assumptions, or other issues with YOU.  The old is gone.  We are in a different era.  Yet you go on and on about buggy whip concepts in the age of the car.  It is fundamentally true horses get better gas mileage than cars; you win except the US is not returning to the age of the horse at least not before you and I retire from working.

    What we saw in fiscal 2010 and 2011 was a huge infusion of allocated funds from the MMI capital reserve fund to the HECM portion of the MMI fund exceeding $2.2 billion.  Yet you do not write about that.  That infusion was because of the underestimated losses using your espoused old concepts when it came to looking at the book of business for fiscal 2009.  I very much appreciate those at HUD who took this unprecedented action in regard to HECMs in making that $2.2 billion transfer.  You probably see no need for it.

    Why did or do you not criticize HUD for using new valuation principles in valuing HECMs?  By that valuation scheme, the value of the HECM portion of the MMI fund on 9/30/2011 almost doubled.  Yet despite the increased value, the total value of HECMs as of 9/30/2011 in the MMI Fund was still far short of the $2.2 billion transferred from the capital reserve fund.  Without the $2.2 billion transfer how could the ending valuation of HECMs in the MMI Fund at 9/30/2011 be positive?  Remember HERA and its required switch of the HECM program from the General Insurance Fund to the Mutual Mortgage Insurance Fund?  You seem lost in the days when the program was experimental in nature and still in the General Insurance Fund.  Then it did not really matter what the balance of the fund was at year end.  Things changed on July 30, 2008 and will never be the same.

    No one at HUD agrees with the old way of computing PLFs.  Those days are gone.  It is time to move on.

    The MLMMI study I referenced has absolutely nothing to do with seniors supporting or not supporting the HECM program.  It has everything to do with the estimated percentage of seniors who are interested in learning about HECMs.  That is an entirely different subject.  It is that interest which drives origination.  Without it, our endorsement numbers will be closer to fiscal 1999 than 2009.  The change in interest is definitely reflected in the endorsement numbers from fiscal year 2008 to today.

    It is OK for you to live in 2009 and prior years.  Just do not try to make me live back there now.  Time marches on and it is hard enough to keep up as it is.  

  • Mr. Veale,

    I guess it is pointless to keep talking to you about things that may be a little hard for you to understand. I have moved on quite a long time ago and I am looking at the future so I am rather flying on hypersonic mode that in an automobile. The only point is that, for us to understand the future, one must understand how we got here and the main drivers pushing the industry. There are factors that are driving the numbers in todays origination, an saying that there no relationships between them or ignoring their interaction is simply bad practice. Looking and working directly in the origination of HECMs, is different than just being on different blogs and providing opinions. Your initial questioning the author of post was about whether their assumptions and conclusions were valid. All that I have said is that what we see today was pretty much evident back a couple of years ago in terms of endorsements and one of the questions is whether acceptance of the product has diminished and the reasons why. I guess you never saw it coming and still having trouble with the numbers as they are today. With the current economic cycle and high volatility in certain markets it will take a some time for endorsements to come back up, even though an extraordinary number of seniors are becoming eligible HECM borrowers, there is  simple not enough collateral and too high debt burden and not enough LTV in the product to regain the speed required to get us back to the 90k endorsement per year level, and this without taking into account  the exit of the big threes which of course affects the widespread and sales footprint of the product. Things like HECM acceptance among seniors are second order effects compared to the other factors. Most borrowers utilize the product still as safe haven when other options are not there, There is a rate of HECM assigned case numbers that never become endorsements and perhaps this will be a good metric to follow in trying to determine if the numbers are down because of the economic factors or just because there is a drop in demand or in accpetance. To make it easier for you to understand: you can look at the rate of new HECM case assigned, look at the rates of endorsements and also look at the rate of cases that are droping off.  The spread and slope or derivative of the different parameters will give you a little bit of pulse here.Hopefully as it has been indicated .more theoretical studies regarding the benefits in terms of cash flows with the product will help with market penetration and product acceptance

    .I got loans to orignate and close so I wll stop at this point.

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