Reverse Mortgage Volume Down 16% as Product Changes Drag Further

The elimination of the Standard Fixed rate Home Equity Conversion Mortgage (HECM) has begun to show its impact on reverse mortgage volumes, dragging down September endorsements by 15.9%, according to the latest report from Reverse Market Insight (RMI).

The downturn comes in advance of an anticipated drop-off due to the most recent round of reverse mortgage changes, effective October 1. 

Endorsements fell from 5,382 loans in August to 4,527 in September, a decline RMI attributes to a drop in reverse mortgage applications following the April 1 moratorium on the Standard fixed-rate product. 

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But even while the industry began to recover from April’s application plummet, September marks the beginning of what could be a trend of falling volumes related to HECM program changes enacted earlier this year, notes RMI. 

More recent HECM program changes that went into effect September 30, such as principal limit factor reductions, new mortgage insurance premiums and borrower restrictions, could also put an additional damper on reverse mortgage applications. 

“The industry’s recovery from April’s application decline was heartening to see and should extend through September’s case number totals, but it will be short lived due to PLF reductions and utilization restrictions that went into effect September 30,” writes John Lunde, president of RMI. 

Some lenders fared the downturn better than others. Among top-10 lenders in RMI’s HECM Lenders September 2013 report, Security One/RMS, Urban and Reverse Mortgage USA all saw volumes grow—by 6%, 8.7% and 18.7%, respectively. 

Associated Mortgage Bankers saw its volume remain steady in September, while New Day Financial had the largest percentage decline for the month at 49%—which RMI indicates they had a heavy mix of fixed rate loans that likely precipitated the company’s recently announced exit from the reverse mortgage industry. 

Nationally, nine of 10 regions felt the effects of the endorsement drop, while the Northwest/Alaska was the only region to post a gain, up to 203 loans in September compared to 200 in the prior month.

Despite 90% of regions posting declines, there were a number of metros with greater than 50% volume improvement, such as Omaha; Pittsburgh; Detroit; Tucson, Arizona; and Shreveport, Louisiana. 

Columbus, Ohio; Phoenix and Las Vegas were among the three metros reporting volume increases that exceeded 60%.

“In all likelihood, we’re looking at a reasonable ending to the year from an endorsement perspective while there is significant volume, revenue and profitability pressure based on fundings,” Lunde wrote.

Written by Jason Oliva

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  • Indeed Jim. Endorsements on a fiscal year basis showed the improvement from our lows last year, illustrating the resilience of this industry in the face of prior PLF reductions and lender exits.

    But just when the grass was getting greener, the current round of PLF reductions will definitely hit volume again and make for tough sledding again in 2014 fiscal year.

  • reverseguy123,

    There is nothing obviously wrong your numerical assessment of the current situation. Neither is there anything wrong with your assessment of how it applies to seniors who are wealthier. However, I take exception with how you believe it applies to financial planners.

    First any originator who is not concerned with how fewer endorsements and lower revenues per funded loan will impact their pocketbook probably needs to be in a salaried position.

    Second, our products generally offer fewer benefits than we could have offered last month (if the prospect could get counseled last month) except for the small difference between the higher available proceeds the current products offer over Savers which most wealthier borrowers will never access.

    Third, the major lenders are specifically reaching out to CFPs not all those who classify themselves or their employers’ classify them as financial planners. Their function and practices are generally much different.

    Like most other financial advisers including most debt counselors, CFPs generally do not have much formal education or training in debt management in a healthy financial situation other than paying down and retiring it. Debt counselors are generally dealing with people having severe problems with debt not those who are using debt as a means to manage financial matters and have no intention of substantially increasing the debt they may currently owe.

    The Sacks brothers, Dr. Salter, and Harold Evensky have just scratched the surface, yet they are causing CFPs to think about using reverse mortgages even in relatively healthy financial situations of seniors. There is some realization by several influential CFPs that delaying the taking of a HECM could produce less desirable results.

    Some of the earlier suggested uses bordered on the ridiculous. For example taking a fixed rate Standard to invest the proceeds. Or simply taking a HECM will cause a deflated portfolio to recover.

    There is a long way to go but inroads are beginning to be made with the financial planning community. For five hundred CFPs and similar credential and licensed individuals to have recently attended a webinar presented through a HECM lender is a major milestone in this endeavor.

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