Financial Assessment Concerns Loom, Reverse Mortgage Volume Declines

ReverseFocusReverse Focus Weekly Podcast Episode #347

With the financial assessment going into effect in one month, Shannon Hicks discusses some of the lingering concerns in the industry. 

The new rules set forth by the assessment will be tougher in some ways on those seeking a reverse mortgage than those seeking a forward mortgage, he says, citing an article by The Mortgage Professor. 

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However, credit qualification on reverse mortgage applicants should reduce the default rates on new loans. But will the financial assessment be too stringent or restrictive for all borrowers?

For reverse mortgage counselors, many agree the assessment will place greater demand on their agencies’ resources, raising ever-looming financial concerns as they ramp up training efforts to prepare for March 2. 

In other news, Hicks highlights a community bank lending survey that shows 75% of community banks say new mortgage rules are keeping them from making more residential mortgages in their communities. Tune in to learn more. 

Finally, following a spike in home equity conversion mortgage (HECM) endorsements in October 2014, nine of the 10 top lenders saw a decline in volume the following month, reverting back to average volume levels, Hicks notes, citing the latest data compiled by Reverse Market Insight. 

For Hicks, the million-dollar question is: What will reverse mortgage endorsements be for 2015, especially after the wake of the financial assessment? 

To listen, login or become a free member to access past and current episodes.

Talking Points:

  • No Deadbeats: The Mortgage Professor looks at the Financial Assessment
  • Counselors prepare for new hurdes with upcoming assessment
  • Community banks stymied by overly strict mortgage rules
  • Year end slump in reverse mortgage endorsements

Listen now“Reverse Focus is the ultimate resource for reverse mortgage professionals providing the technology, training and marketing to grow your business. We are your one-stop resource for those committed to taking their business to the next level.” Editor’s Note: These posts are sponsored by Reverse Focus.

Written by Emily Study

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  • What my fiend Shannon Hick’s is asking is a good question, what will be the endorsements be like in 2015? I don’t think any of us can answer that at this point in the game. All of us need to get a handle on the new rulings and I say rulings, plural!

    It is not only the FA that plagues the industry, it is all of the changes combined. New ML’s are coming out frequently that changes previous one’s, this is starting to be boggling.

    Not only what I just brought up but all the new regulations and rulings are hurting the small community banking industry terribly! Don’t get me wrong, in the long run, many of the changes will help stabilize our industry. The problem is how all the changes and rulings are introduced. We lose confidence because it appears HUD does not fully understand their own rulings and changes they are introducing?

    John A. Smaldone

    • John,

      Understanding the current climate for endorsements at this point in the fiscal year is crucial to understanding how the industry will do for all of fiscal 2015. So far the endorsement total after 1/3rd of the fiscal year is behind us is running at about 37% of what they were last fiscal year. As to the number of units, we are running about 1,000 more endorsements than we did at the same time last fiscal year.

      But is the endorsement trend for this fiscal year good enough to be pleased with? Absolutely not! Total endorsements for last fiscal year were the worst we have experienced in the last nine. It was only about about 45% of the volume we had in fiscal 2009.

      So let us be realists for one paragraph and ask what is the public telling us? While we say that the New HECM is better for consumers, despite a growing senior population base, fewer seniors are getting HECMs which tells us that the public is not buying our sales propaganda. Even after the major investment of money, talent, and time put into the Extreme Summit last fiscal year, we are ONLY doing marginally better this fiscal year than the worst fiscal year for endorsements out of the last NINE? Most industries are doing at least 80% of what they were doing before the market crashed almost seven years ago but not us, Last fiscal year was the worst fiscal year for endorsements after 5 years of continuous decline with the exception of fiscal 2013 which was only about 53% of the number of endorsements in fiscal 2009.

      We are heading into a new era for HECMs. However, few are saying it will be better for endorsements in the last quarter of this fiscal year as a result. Last fiscal year only 11,000 HECMs were endorsed in the fiscal quarter ended 9/30/2014. Will the HECMs endorsed in the fiscal quarter ended 9/30/2015 be better? We will be fortunate if that quarter results in even 10,000 endorsements.

      In the end, fiscal year 2015 may do better than fiscal 2014 but it is doubtful if it will be 10% better. It is more likely to be about 3% better. That will be horrible when looking at origination revenues. Average revenue per Saver v.3 (i.e., the so called New HECM) is much lower than the per Standard revenue just two fiscal years ago. Increased HECM volume was supposed to make up for most of that loss but it will NOT at least as to either fiscal years 2015 or 2016.

      Yet it is fiscal 2016 when we will feel an even worse effect to total fiscal year endorsements from lender financial assessment. While the percentage of endorsed HECMs which have gone through lender financial assessment during fiscal 2015 will be less than 20%, it should be well over 90% in fiscal 2016. Lost business from the implementation of lender financial assessment will make fiscal 2016 the worst year for endorsements since fiscal year 2005! (I do not want to write fiscal year 2004 even though that is quite possible if lost business exceeds 19%.)

      John, I hope that puts some perspective to endorsement volume for fiscal 2015 and 2016. I am not prepared to estimate total endorsements in fiscal 2016 just yet but the hope is fiscal 2005 will actually be a worse year for endorsements and fiscal year 2016 will be the bottom in total endorsements for years to come.

      • I appreciate the time you took to explain and write this comment. Make it a great day and I hope you are somewhere warm!

        John

      • John,

        I am running around in a tee shirt and basketball shorts. Yeah, that is winter in Southern California. It is so bad that sometimes we actually have rain. Of course we just lost an important refinery in Torrance for awhile.

        I hope our colleagues and you in particular are keeping warm. Take care.

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