Home Values: Still Largest Single Reverse Mortgage Growth Barrier

Housing market factors are will be the greatest influence on restoring growth to the reverse mortgage market, several lender executives told industry professionals on Monday. Companies are also waiting out the aftermath following large lender exits that left many loan originators displaced and seeking new employers in the space. 

Speaking on a panel before attendees of the National Reverse Mortgage Lenders Association annual convention in San Antonio, chief executives from Genworth Financial Home Equity Access, Urban FInancial Group, Reverse Mortgage Solutions as well as a former MetLife executive spoke of what needs to happen in order to see growth in reverse mortgage endorsements again and the distinct challenges they face. 

“It’s important to keep in mind we’ve had six really difficult years in the housing market,” said Pete Engelken, president and CEO of GFHEA. “It has taken its toll on origination volumes and home values. We are also continuing to see the impact of lender exits over the last couple of years.” 

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Those lender exits—Bank of America, Wells Fargo and most recently, MetLife Bank—sent hundreds of originators to new companies, many of which have different origination models and marketing types from those large, retail branch-based banks. 

“It takes time for loan originators to settle at new places,” Engelken said. “As new applications move through the system, there is a lull right now. But we are seeing signs of improvement. The [recent] increase in case numbers will eventually translate into an uptick in endorsement volume.” 

While industry musical chairs is not an entirely new concept, so many originators moving in a short period is an unusual situation, said RMS President and CEO Marc Helm. 

“Four financial services type players exit, and that has some very unique impact,” he said. “Our industry has been challenged in terms of how to regroup those people.”

But even once those originators settle in, the question of home values remains a major concern of industry leaders. The latest data compiled by Standard & Poors/Case-Shiller Home Price Indeix indicates home prices are beginning to rise slightly in some areas, but they are down substantially in some regions without a bottom in sight. 

“The single reason loans are not making it through to funding is home value,” Engelken said. “Either they are short to close or the value doesn’t come in at a level where the consumer is comfortable. That’s the largest driver.” 

Managing expectations is one part of the issue, but the values themselves are presenting the single-greatest hurdle to growth, the executives say. 

“In our small retail unit, it’s all about the home value,” Helm said. “The customer always thinks home is worth more than it is. In 90%-plus cases it’s related to home value.

Written by Elizabeth Ecker

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  • While I agee that home values are down and borrowers think their homes are worth more than they are and that sounds good to verbalize that to the press it leaves out a third reason for low production that lenders fail to communicate and that is some lenders have quotas on number of loans they can close each month based on how their secondary market sale is configured so they are forced to arbitrarily find reasons not to close loans w/o falling into the trap that they also contribute to the lower production figures. Without revealing this third reason then the public is caught in the belief it is the market’s fault and the borrower’s fault w/o the lender taking any heat that they contribute to this lower production as well. It would not be wrong to step up to the plate and add this fact to the mix and would make the public more aware of how the secondary market works.. But if you are actually a player this would not be happening anyway and I think the truth hurts.

  • While I agree that home values are down and borrowers think their homes are worth more than they are and while that also sounds good to verbalize that to the press, it leaves out a third reason for low production lenders fail to mention. Some lenders have quotas on volume of loans they can close each month based on how their secondary market sales are configured; therefore they are forced to find reasons not to close loans w/o falling into the trap that they also contribute to the lower production. Without revealing this third reason then the public is caught in the belief it is the market’s fault and the borrower’s fault w/o the lender having to take any heat that they too contribute to the lower production. The ones that blame the market and borrowers are for the most part not players and telling the truth would reveal that fact so let’s blame something and someone else.

  • Rosebud,

    I have NO idea which comment to which to respond.

    Your point on secondary market concerns has validity but it probably is not as great as others.  However, it should be disclosed as one.

    It would be nice to see some kind of breakdown using percentages of the causes for the declining conversion rates.  When it takes 50% more case number assignments to produce the same number of endorsements, originators [both inside (call centers) and outside originators] need some insight on what is happening and more importantly why.  If there are easy fixes for originators, then that should be made known.  BUT even those which are not easy to fix should be understood.

    • RMD posted this twice in error. I thought maybe they liked my comment so much they wanted you to read it again. My point is if a lender is going to announce that production is down because of declining values and borrower’s unrealistic expectations perhaps some should visit their own backrooms  to see their turn downs based on arbitratily lowering values and declining loans with no ties to FHA guidelines (overlays are perfectly allowable but they should be explained). These practices definitely affect production and should not be blamed on market values and borrowers. And you are absolutely right in your comments in your second paragraph. I only used the secondary market as a scapegoat so that I didn’t have to be so blunt to the lender that made this comment.

      • Rosebud,

        While you make an interesting point, the comments are slightly different so RMD may have been unsure which one you wanted posted.  You could always edit the one you want removed by erasing it and place a note to Ms. Ecker to remove it.  She is good about that.

        As to your subject matter, it is one most of us do not recognize as related to secondary market quotas placed on lenders.  It was really good you brought that up.

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