After Home Price Rebound, What’s the Next Reverse Mortgage Growth Hurdle?

For months—and even years—it has long been accepted that the aftermath of the housing bubble has been the strongest contributor to a contraction in the reverse mortgage space. 

Retreating an annual count of more than 100,000 loans at the height of the market to fewer than 60,000 in 2012—a decline of more than 40%, industry stakeholders have been awaiting a recovery in home prices as a means to jump start lending once again as more borrowers will qualify with higher levels of home equity than they have seen over the course of the recession. 

Now, it appears that recovery is under way with several months of consistent economic data to prove it. According to the latest data from the S&P/Case-Shiller home price index, prices rose on a national level 7% in 2012. While that gain may not be replicated in 2013, the commonly held perception is that the market is better this year than last year, and will continue on an upward path in the coming months. 

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Yet the reverse mortgage market, based on monthly data, has not made substantial recovery inroads just yet, and there will be more hurdles for the industry to face in 2013. 

“We’re already seeing some home price recovery boosts in reverse, but it will be slow and steady as we’re coming back from a long price decline (that accompanied our volume decline),” says John Lunde, president and co-founder of Reverse Market Insight. “Next hurdle for growth is still the impact of reduced revenue from standard fixed rate going away, after that it’s going to be financial assessment and other changes FHA makes by September.” 

Those product changes, if made under the time frame encouraged by the Federal Housing Administration, are likely to present a short-term drag on volume with the long term impact still many months away. 

“While home values are slowly coming back, we will need to work through the upcoming HECM Program changes such as loss of the full draw, fixed rate program. Other changes slated prior to August 2013 such as underwriting requirements for assessing financial suitability etc and possible T&I set asides will also need to be measured,” says Jeff Taylor, president of Wendover Consulting. 

Once the changes have been made, however, reverse mortgage potential will be well positioned once again, Taylor says. 

“Once the industry has digested the program changes and seniors once again look to their home equity to provide access for a line of credit or other financial needs, the industry will be well positioned to serve,” Taylor says. 

Written by Elizabeth Ecker

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  • At our peak there were 114,785 endorsements (fiscal 2009) for just HECMs alone. Last fiscal year we had 54,842. That is a loss of almost 53%. There really is little chance we will see 53,000 endorsements for this fiscal year. Projections have been coming in at around 49,500 for about a 57% loss from the peak.

    Expectations are fiscal 2014 will be worse than fiscal 2013. The basic reasons have been given, adjusting to less than manageable financial assessment and mandatory set asides for taxes and insurance. Fiscal 2015 looks like the first fiscal year things might jell. With the nomination of two new Presidential candidates, fiscal 2016 could be the start of a significant turn around.

    For now some of the largest lenders will for the first time in several years have to deal with losses in endorsement numbers for their own companies. Revenues will be down across the board.

    As an industry we are not so innocent as we once were. Proprietary products did not rule the day and become even close to the majority of loans we did by the end of the last decade. We do far fewer proprietary reverse mortgages today than we did Home Keepers or annually adjusting HECMs in fiscal 2008. We did hit a glass ceiling and it would not break but yet we can see a brighter future when we return to that level once again.

    Anyone who claims to understand why we are at these levels today most likely is guessing. Home prices have been coming back for months and months. In some places, values are almost as high as before the mortgage bubble burst. The senior population has ballooned like we expected. Financial planners are looking at our products as valid and useful retirement products. We many dedicated to educating Realtors on HECMs for Purchase. So where are we falling down on the job?

    The question all of us will be wrestling with for the next two years is what can we do to turn things around once again. It certainly will not be the introduction of celebrities into our marketing campaigns.

    • Without question.

      The case number assignments in June through September were far too low to support anything much higher than 52,000. Then add to that the proposed financial assessment HUD was stating would be instituted this year along with potential set asides for tax and insurance and how could the numbers be over 50,000? As to financial assessment, HUD was stating that last fiscal year and sounded more adamant about it the closer we got to October 1, 2012 and there rumblings about set asides by October 1, 2012 as well.

      Actually the announcement of the termination of the fixed rate Standard was never believed to have a whole lot of impact to endorsements for this fiscal year. The Mortgagee Letter drove that home. What the March 31 cutoff date means is that we will see about 10 months of the normal fixed rate Standard volume we would see in any fiscal year.

      The twelve month peak for case number assignments was for the twelve months ended September 30, 2009 at over 163,600. As for the twelve months ended November 30, 2012 (the latest case number information posted by FHA), the total was a little over 84,300. That is a continuing overall decline that shows little signs of improving. With the annualized conversion rate only getting worse, endorsement improvement seems out of the question for now and only getting worse with time.

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