There’s a Silver Lining in Reverse Mortgage Volume, Despite 9-Year Low

Home equity conversion mortgage (HECM) endorsements fell to just 3,256 in August, the lowest number since July 2005, according to data by Ibis Software Corporation, which tracks HECM counseling sessions, case numbers and endorsements. 

“Monthly endorsements are the lowest they’ve been in the last 9 1/4 years,” says Ibis President Jerry Wagner. “People are saying, ‘Hey it’s a turnaround,’ but I’m saying, ‘Well, maybe not.’” 

The 3,256 HECMs endorsed in August represents the lowest figure for both a month and for three trailing months since July 2005, when just 3,139 HECMs were endorsed. 

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Although some reports indicate reverse mortgage volume may be trending up, Wagner notes that reverse mortgage program changes sometimes result in a flurry of applications, but not necessarily a corresponding number of endorsements.

For example, when the Federal Housing Administration (FHA) announced an upcoming 15% reduction in principal limit factors (PLFs), more than 16,000 reverse mortgage applications were taken in September 2013. But those extra 6,000-plus applications didn’t seem to translate into any additional endorsements, even when taking into account the five- to six-month lag time from application to endorsement, Wagner says. 

Even when taking into account the five- to six-month endorsement lag time, the extra 6,000-plus applications didn’t turn into endorsed HECMs or closed loans, Wagner says. 

“What scares me is that we had this big flurry here in August and September 2013, and five to six months later, there’s no change in endorsements — in fact, they’re falling,” he says.

But there may be a different silver lining in looking at the recent volume indicators: Reverse mortgage counseling sessions are on the rise, meaning that people are still interested in — and may be gaining interest in — the product.

A wave in baby boomers becoming eligible to take out a reverse mortgage may be contributing to this increased interest.

June saw a 10% rise from May in daily Ibis Reverse Mortgage Analyst (RMA) counseling clients, July saw a 3.1% increase and August saw a 4.9% increase in counseling clients. While there was a 10% rise in counseling sessions in June, there was also a 4.9% rise in case numbers — or applications — in June, according to the most recent Ibis data. 

“The good news I see is that counseling sessions per day are growing and applications in June were up 5% over May,” he says. 

Written by Emily Study

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  • For decades we have been told to get ready for the impact of Boomers turning 62 on our industry. I am a realist and have been waiting for almost seven years now to see any empirical evidence pointing out even one single positive impact on endorsement volume that could be attributed to Boomers; there are absolutely none. Since January 1, 2008, the additional positive impact from Boomers turning 62 is at best nonexistent.

    What all of the rallies and cheer leading about this much anticipated event has proven is how easily we are swayed by our own irrational exuberance and ultra optimism. Both fiscal years 2008 and 2009 had marginal increases in endorsement volume. Fiscal year 2013 which had an increase of less than 7,000 did not have 60% of the endorsement volume we saw in fiscal 2007 when no Boomers were 62.

    The silver lining described is an illusion at best. When we see 5% changes in trends, we begin to discuss marginally significant changes in trends. While there may have been a 10% change in one month, the changes which followed were not even 50% of the first change and did not achieve a 5% change level.

    While the numbers show month-to-month changes, nothing is shown for year-to-year changes. Are we really this desperate for good news? What about the news from the Extreme Summit? And could the rather Melba toast Extreme Summit message be increasing counseling and because counseling has not yet absorbed some recent changes caused the corresponding low increases in applications, case number assignments, and closings?

    But could there be yet another source for some of the changes to trends Jerry describes? One such source could be the hiccup effect from the August 4 increased Principal Limit Factors John Lunde recently presented in some recent Reverse Marketing Insight Reports.

    Personally there are so many things occurring at the same time, it is difficult to identify specific causes to a few aberrations.

  • Show me the “pull through rate” for the period in question and then we can talk about our propensity to “Stampede” our clients into last minute decisions in an atmosphere of urgency and desperation and it is no wonder we have dismal outcomes…..We are allowing ourselves to be whipsawed from one end of the spectrum to the other on a routine basis due to questionable leadership at HUD and an industry just a little too desperate to “live in the moment” rather than think about the long term possibilities for our industry and our livelihoods. If all you’re trying to do is capitalize on the temporary opportunities and to heck with the future, you are part of the problem rather than part of the solution.
    good luck!.

    • hecmvet,

      Are you asking about the pull through rate of 1) application through endorsement, 2) counseling through endorsement or 3) case number assignment through endorsement. All are different with the highest of the 3 always being the last, i.e., the pull through rate for case number assignment through endorsement.

      While HUD has exact information, most of us who track this information use some kind of estimating from macro information while HUD uses an exact method. Personally I follow a method introduced by Jim Veale several years ago which uses a twelve month trailing total with a four month lag. The numerator is the endorsements in the last twelve months and the denominator is the total case numbers assigned in a twelve month period that begins four months before the start of the twelve month period used in the numerator and ending four months before the end of the twelve month used in the numerator. It is perfect but shows trends using numbers over a relatively extended period of time smoothing out many of the aberrations that pop up in rare month to month calculations.

      Someone like Jerry Wagner would have to supply more exacting information.

      • Well, Cynic…….the number that really gets my curiosity going is number 1. Applications through Endorsements because it reflects how aggressive we are in dealing with senior homeowners and it demonstrates what we are doing to them through failed transactions that stick the homeowner with counseling and application fee costs, regardless of whether they are willing and able to move forward or not. This is the data that matters as to how we do our jobs, how we treat our clients, and our reputation, (how we are viewed by the marketplace in the LONGTERM!).
        Pull Through Rate, from application to endorsement reveals much about the training, experience, skills and integrity of those we turn loose on the public and it determines how we are viewed in the longer term…so…it is the only statistic that MATTERS to me.
        Thanks for asking!!

      • hecmvet,

        The only way application fee costs can be charged is if there is a case number assigned. However, no case number assignment is required to incur counseling related costs. HUD does not disclose the latter but it is my understanding that the counseling association tracks counseling sessions and if counselees close.

        As to case number assignments, only HUD tracks that information on a total basis. They obviously also track it on an individual applicant basis.

        It is still unclear if you want information on all those who have taken counseling or all those who have taken counseling AND incurred application fee costs.

        Without clearly stating what it is you want, no one will be able to help you.

      • cynic, you needn’t explain how case numbers are ordered or what affect they have on customer expenses.
        Every company knows how many loan applications they take and they know how many of them close and fund so I am “clearly stating what I want and you shouldn’t assume that I am looking for any “help” from you.

    • “if the Lord’s willin and da creeks don’t rise” lol.
      brace yurself! we’ve got rising rates to deal with and the laughable, regrettable and unnecessary Financial Assessment to cope with….plus substantial boomer indebtedness. I think we have some headwinds to deal with. This program doesn’t need financial assessment, it needs property appreciation! That’s what makes this thing work…..most of the time..

    • Lance,

      Are we talking about as the bottom, August endorsements, or endorsements for fiscal 2014, calendar 2014? Yet few prognosticators believe that financial assessment will increase endorsements or even keep them at the level they now are. Right now the two great unknowns in the industry are the date of implementation and the impact on closings from financial assessment.

      If there were no financial assessment component being added in the future, my tendency would be to agree to your position sometime in early 2015. The delay is due to poor case number assignment numbers for May and thereafter. Financial assessment, however, may hold the endorsement totals down for much longer once it is introduced (if ever). So I am not ready to call the August 2014 endorsement our bottom.

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