Reverse Mortgage Applications Fall Sharply Following FHA Changes

Following the April 1 suspension of the fixed rate standard reverse mortgage, the lending community says it is seeing far fewer applications for new loans. 

With some of the fallout to be expected following the change, the most recent data available from the Department of Housing and Urban Development indicates applications for April and May are well below their pre-April 1 levels. 

“Based on numbers we’ve run through end of May it looks like applications are down much more significantly post April 1 than our conversations with lenders originally led us to believe,” says John Lunde, president of Reverse Market Insight.

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Anecdotally, some lenders are reporting double-digit losses spanning as high as 40%, with RMI seeing applications down at least a quarter by its informal tally.

“When we compare application volumes from January-February to April-May we’ve seen roughly 30% declines,” Lunde says. 

The loan mix has shifted from a vast majority of fixed rate loans to nearly 95% adjustable rate loans following the implementation of the moratorium. While lenders expected a surge of application volume in the months leading up to April, many said they were shifting marketing attention as well as training toward the new origination mix. 

But losses around 30% may lead to more serious changes among lenders, should the application decline prove more steadfast than a short-tem reduction. 

“Taken in conjunction with expected lower revenue per loan post April 1, I would imagine there are a lot of serious conversations happening at this point about where to tighten business models for more efficiency,” Lunde says. 

Written by Elizabeth Ecker

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  • Think it’s bad now. Wait until financial assessment, limited draw and T&I set asides. It will be down 50%. This will really be a niche product.

  • I feel there is to much attention and blame given to the fixed rate product being eliminated from the market as the major cause in the drop of business.

    Have loan officers and companies gotten so used to the fixed product and all the money that was made from it? Have we have forgotten what the real sales tool is and how to use it?

    We need to go back in time to the days when there was no fixed rate product. Many of you that have been in the industry for only a few years may not remember those days.

    We sold the concept of the product, we uncovered the seniors needs and put them into the product and option that was best for them.

    What separated one loan officer and company from the other was our ability to gain trust in us on the part of our senior clients. We knew the business well and we were able to advise our senior client’s properly. We were judged on our knowledge of the reverse mortgage industry.

    Could this be some of the problem? Could it be we are having a problem following the sales scenario I just outlined above??

    We have products that will do the job for the client just like before when the fixed rate product was here prior to April 1st. Lets not blame the lack of business on the reason that the fixed rate product has been eliminated from the market. The blame should be placed and looked for else where?

    John A. Smaldone

    • John,

      There is a huge difference between a modified order taker and a salesperson who competently understands their products and how they fit into the life of their users. While the loss of the fixed rate Standard may have been the primary contributor to the current decline, your points are well taken.

      The cash needs of senior homeowners are no different if all we have are adjustable rate or fixed rate HECMs. Whether fixed or adjustable, HECMs in most cases should be a viable if not the preferred solution.

      • Critic,

        I agree with you 100%, I think we are on the same page and I hope I coveyed that in my comment?

        Take care,

        John

    • Lance,

      I am surprised by your optimism.

      Even without changes to underwriting guidelines, mandatory set asides for taxes and insurance for all borrowers to cover several years of those items as previously proposed by HUD would take a huge toll. The proposal would supposedly only last until better data is established for determining a more appropriate policy.

      Nonetheless, it is good to see you back.

      Zorro

  • I represent a different point of view.

    There are a handful of us in the industry who believe a good portion of the current drop in business has more to do with the fallout from the pull forward effect of the fixed rate Standard being consolidated on April 1 than any other source. We believe that a good portion of the demand will bounce back over summer. We believe that those who would have obtained fixed rate Standards later in spring and summer were forced to do so much earlier.

    Then there is the issue of the accuracy of the data in the article to begin with. The information after January 2013 are estimates since HUD has failed to provide any case number assignment for case numbers assigned after January 31. If the information from lenders was weak before, how much better are their numbers now? Beyond that one must suspect certain anomalies between HUD and lender information. So clearly the validity of the data must be questioned. But nonetheless a decline has occurred; the question is how much and what is its source?

    However, while we may eventually determine a better number for the amount of decline, we may never know what the significant sources are for certain since other detrimental changes to origination production are in the pipeline.

    I also believe like Mr. Smaldone that some of the decline is due to how green many originators are in presenting adjustable rate HECMs. Addressing the aversion of seniors to adjustable rate products is not a simple task and takes time to learn adequately.

    (The opinions expressed are not necessarily those of RMS or its affiliates.)

  • I have more loans in the pipeline than I’ve had in past 6 months and 2 are loans with no UPB at closing on LIBOR Saver (want LOC) Would not be able to sell a fixed rate to any of those in the pipeline right now anyway.

    • wealthone,

      I get the same message from a few other originators but all of them have been in the industry at least 7 years. John Smaldone speaks to this issue. However, one has been unable to originate the last two months as he is trying to close the nearly 20 fixed rate Standards he took in March.

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