Reverse Mortgages Down 23% in 2012, Will New Year Bring New Growth?

With the final tally of reverse mortgage loans in calendar year 2012 showing volume down more than 20% over 2011, the outlook for the coming year still has several major “wild cards” in play.

December Home Equity Conversion Mortgage (HECM) volumes drove a continuing downward trend, recording 3,912 endorsements and dropping 11.8% from November, according to the latest report from Reverse Market Insight (RMI).

These numbers drove the annual volume to come in at 52,992 loans in total, down 22.9% from the previous year total.

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While numbers were expected to fall due to lender exits including the earlier departures of Bank of America and Wells Fargo, the additional impact from MetLife and First National Bank of Layton exiting the business proved to drag volume down perhaps more than expected, according to John Lunde, RMI president and co-founder.

“We think transition issues arising from other exits by MetLife and FNB Layton for example account for the rest of the decline in 2012 and ate up any growth the industry might have had,” Lunde says.

As for the low volume having an impact on on future growth, the horizon is looking up, RMI says, pending a few uncertainties in play.

Annual growth is expected based on a housing turnaround that has begun to take hold, but several unknowns could present headwinds for a potential rebound.

The lender exits from 2012 combined with upcoming product changes expected from HUD in 2013 could stand to present a new drag on volume, Lunde says. Beyond the adjustments to the fixed rate standard product outlined by HUD’s Carol Galante in December, additional “wild cards” will come into play.

“The remaining wild cards are T&I set asides and financial assessment, which could potentially have larger negative impacts than either point above,” Lunde says. “These will largely determine the volume level in 2013 and beyond and the range of possibilities is unusually large simply because we don’t know what changes FHA will make.”

Written by Jason Oliva

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  • There is no question that the endorsements for this fiscal year will be much lower than last. The endorsements for the first quarter of fiscal 2013 are already 13% lower year over year and that reflects no elimination of HECM fixed rate Standards. This is the eighteenth month in a row that the endorsement totals for the last full month is lower than for the same month the year before. That trend shows absolutely NO signs of letting up at any time before fiscal 2014 and perhaps 2015.

    The projected loss in endorsements due to an elimination of the fixed rate Standard will not be seen until at least May 2013 endorsement numbers. So the loss to endorsements this fiscal year should be rather low compared to its expected impact to endorsement totals for fiscal 2014.

    While there would have been little surprise by a 7% loss in endorsement totals for the first quarter of fiscal 2013 compared to the first quarter of fiscal 2012 due to a 7% drop in case number assignments in the four months ended September 30, 2012 compared to the case numbers assigned in the four months ended September 30, 2011, a 13% drop in endorsements was surprising despite Hurricane Sandy. One very disturbing trend is that the annualized conversion rate (following case number assignment) is now the lowest in recent memory at 63.1%. Just last year at this time, it was 67.5% and in October 2007, it was over 95.9%.

    Mr. Lunde missed the biggest wild card to HECM endorsements during this fiscal year and that is the elimination of fixed rate Standards and also the slow, slow response to the damage to homes by Hurricane Sandy. Proposed rules on financial assessment with its possible T & I set asides may be released this fiscal year but it is extremely doubtful if it can be implemented during this fiscal year and even if it is, the impact will not be seen in endorsement numbers until at least May 2013 based on the industry rule of thumb that it takes for four months for the average endorsed HECM to go from case number assignment to endorsement. Any impact to endorsement totals from these proposed rule changes will probably not be seen until mid fiscal 2014, if not until fiscal 2015.

    Making predictions right now is like using a black bowling ball in place of a crystal ball. The reason is we have no information on HECM case numbers assigned after September 30, 2012.

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