Reverse Mortgage Lenders Face Strong Headwinds in 2014

Reverse mortgage volume continued to grow nationally through November with a 12% uptick during the month to 4,690 loans. But while endorsements are expected to continue on pace for the next several months, according to a report this week from Reverse Market Insight, changes to the product will likely begin to take major effect in early 2014. 

“We expect to see endorsements continue to be relatively strong for the next few months, but turn significantly lower toward the end of Q1 next year,” RMI writes. “New applications are falling well short of replacing pipeline fundings since principal limits were reduced.”

But in spite of headwinds resulting from the new product landscape, the last nine months have showed growth in line with home price appreciation over the same period, RMI notes. 

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“On the bright side, despite all the program changes this year it’s been a growth period for the industry with volume up 15.9% through November, including 9 straight months of year over year increases since March,” the report notes. “That coincides fairly closely with housing price upticks over the same time frame, but it’s more a case of no significant lender exits upsetting distribution and marketing reach this year alongside stabilized housing prices.”

Six of the top 10 lenders saw volume increase during the month, with one lender’s volume remaining flat the and three seeing volume decline. Among the top 10 lenders, Security One/Reverse Mortgage Solutions holds the top spot for endorsements over the past 12 months, at 7,311 loans. S1L is followed closely over the same time period by American Advisors Group with 7,074 loans and Liberty with 7,062 loans. One Reverse and Urban Financial complete the top five lender list with 5,411 and 3,937 endorsements, respectively. 

View the RMI report.

Written by Elizabeth Ecker

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  • The biggest problem facing the industry today is not endorsements, although that is a very real and important issue, but revenues and a considerable drop in initial UPBs across the board. For the last four years, even though endorsements were awful, the revenues on HECM fixed rate Standards made the revenue situation more than tolerable since that product composed over 70% of the originations in those years. Since no Standards can be originated today, the lender revenue situation looks much bleaker.

    The fourth calendar quarter of 2013 should still yield relatively high “revenues” (but per the SEC future obligations) since lenders are wrapping up their Standard and Saver closings this month. Lender cash flow will take a huge hit starting in January for the industry as a whole. There is little way that situation will correct itself in either 2014 or 2015. Some lenders will feel the pinch particularly hard as they participate in the NRMLA Extreme Summit (the adjective “Extreme” is very significant in this context).

    If HUD lowers the HECM lending limit on January 1, 2015, to $417,000 as several industry observers predicted last month at the annual NRMLA national convention in New Orleans, lenders will take yet another major hit in both endorsements and more particularly, revenues. If the predicted drop in the lending limit is right, 2015 will be the brightest opportunity for the return of proprietary products than at any in the previous seven years. However, the changes being made by HUD do not serve as a motivation for propriety product buyers to play in our marketplace even if proprietary product providers might be willing to return or come for the first time into our space. If the HECM lending limit drop materializes in 2015, what will be a potential opportunity for proprietary product providers, will be a much bleaker outlook for lender revenues in 2015 than even 2014.

    So the optimism we are hearing so much in the industry is not so much a result of a realistic assessment of our future as much as the only way to hold everything together while lenders try to find a way out of the problems set before them. Before HERA and sometime year thereafter, a common slogan we heard in this industry is that we do not need to sell HECMs, they sell themselves. Today, we hear the need for the Extreme Summit.

    How things have changed.

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