How Much Will FHA Reverse Mortgage Product Changes Impact Business? [Poll]

With reverse mortgage lenders preparing for the April 1 suspension of the most popular reverse mortgage loan offered under the Federal Housing Administration’s Home Equity Conversion Mortgage program, many are reporting a spike in business as the cutoff approaches.

Those in the business liken the influx to past FHA program changes which have changed the product availability for potential borrowers one way or another—historically through changes in mortgage insurance premiums or principal limit factors.

Lenders as well as others involved in the reverse mortgage process report they have been “swamped” with interest leading up to April 1, from counseling agencies to appraisal management companies. One appraisal management company told RMD that reverse mortgage appraisal volumes have nearly doubled this week.

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Lenders, too, are counting best-ever months for volume as the most popular product goes away—at least for the time being as the changes are effective for all fixed interest rate case numbers assigned on or after April 1 for loans that must close by July 1, 2013.

“We have had a recording breaking two months of applications,” says Dave Bancroft, reverse division manager for Irvine, Calif.-based Greenlight Financial. “Now we just have to bring it home.”

The pressure on lenders has been building especially in light of more requests for counseling as the deadline approaches.

“It has been extremely busy this month and borrowers are very informed with regards to the change,” says Josh Shein VP for Maverick Funding. “In addition, as we are approaching the end of the month, borrowers are calling to inform us that no counseling is available at all until next month so clearly this is having a major impact.”

One top-10 lender reported that while it is too soon to tell how things will rebalance long-term, new reverse mortgage applications in the week leading up to April 1 are shifting to a 50%-50% split between the HECM Saver and the remaining adjustable rate HECM standard product.

HUD data is not yet available for the months preceding April 1, but many are anticipating the rush could subside with a rebalancing of new applications as the market adjusts in response to the changes, the depth of which remains to be seen.

“My expectation would be that applications don’t fall from their trend from the past six months, but if we’ve pulled some demand forward with marketing then that will make for a decline all by itself,” says John Lunde, Reverse Market Insight president.

How much do you anticipate your business will be impacted? Please respond to the following poll.

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  • The best month EVER for case number assignments (called by some applications) is September 2009 at over 19,000 confirmed by HUD. For the latest month we have information on, January 2013, the number was almost 8,600.

    However, it is highly unlikely case number assignments for March 2013 will near record volume. The fiscal year that followed that exceptional volume is the very worst percentage drop (31%) in endorsements on a fiscal year to fiscal year basis in the history of the program. So just based on numbers what looked like should be our best fiscal year ever resulted in the worst single decline in both number of endorsements (35,596) and percentage.

    High case number assignment months are not always good indicators of what is ahead. One other thing about the difference between September 2009 and February 2013 is that pull through percentages were much better in 2009 than today. It is estimated that on an industry level it takes at least 18% more case number assignments today to get the same amount of endorsements as it did in fall 2009.

    Hearing that relatively small lenders are having their best months with the big four (including Financial Freedom) gone, is not exactly overwhelmingly encouraging. But with that said, congratulations on increased application volume to all of those lenders who have done well this month. As Jeff Taylor pointed out recently, we did best when broker participation in our industry was high. Let us hope this piece of good news allows the industry to retain more brokers.

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