Falling Conversion Rates Lead to Heavy Reverse Mortgage Losses

Reverse mortgage volume sank sharply in September to 3,706 loans—a 10.1% decline from August and marking one of the lowest months for endorsements in recent memory, according to Department of Housing and Urban Development data reported this week.

Across almost all geographic regions and all but one top-10 lender, Genworth Financial Home Equity Access, endorsements fell during the month. The decline can be attributed at least in part to a growing trend, RMI says: lower conversion rates from case number assignment to loan closing.

“What becomes obvious when we look at the trends in the basic endorsement chart is that there’s an increasing gap between case numbers issued and endorsements,” RMI writes. “This is the conversion rate issue that FHA has pointed out at past industry events, demonstrating that the exited lenders as a group were more efficient at converting case numbers issued into endorsements than the remaining lenders collectively.”

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Those conversion rates are volatile, RMI notes, but still present a strong downward trend, when averaged across months amounting to a drop from 82% in December 2010 to less than 60% from March to May 2012.

“So while steady increases in case numbers issued are undoubtedly good news for the industry, unfortunately the decline in conversion rates means it’s an uphill battle to get back to growing year over year on an endorsement basis,” RMI writes. “The 2.1% increase over August 2011 will be entirely offset by the decline in conversions, so we’ll have to wait til 2013 for endorsement growth even if case numbers issued continues to grow.”

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View the report.

Written by Elizabeth Ecker

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  • Underwriting turn times haven’t helped either- some of the clients give up.  “Too much hassle” some have said as the underwriting issues have begun to lean closer to forward mortgage requests.

  • Frankly a current comparison of transactions today vs those of 2010 should include factors not mentioned.  It’s true that lenders who have been around have front end processes / procedures to mitigate possible hurdles later in the process, because they’ve faced lower conversions at one time.  They have all strengthened processes to mitigate.  Newer lenders will go through the same scenario over time if they stick with it. Unfortunately most learn through loss.

    Aside from that, appraisals are just harder to get through underwriting compared to earlier years. If you don’t focus on the asset up front as much as possible and do some homework, conversion will continue to be a problem.  the one metric not mentioned was percentage of declinations.

  • I think it is unusual since my personal conversion rates are up.  The article doesn’t touch on the dates these case numbers were pulled and whether it has more to do with continued declines in values in the areas where more people are hurting financially.

  • Could it be that salespeople are taking applications before homeowners have made well informed decisions?  As hecmvet stated, it will be interesting to see what happens when revenues normalize.

  • All of the comments I have seen here have been good one’s. Underwriting turn times are making it very difficult, lenders pulling out of the industry has the consumer skeptical and the over regulated environment we are in is not only slowing the entire process down but it has everyone doubting themselves on if they have the capabilities to make a decision anymore!

    The industry has a confused mess on there hands. Fear is a major driving force that has created an environment for seniors and people in general to not go forward with plans to do anything, which includes a reverse mortgage!

    John A. Smaldone
    http://www.hanover-financial.com

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