The reverse mortgage industry is seeing a surge in borrower interest — from a 21% increase in counseling sessions to an uptick in phone calls from concerned borrowers — and some say the resulting loan volume could surpass record highs.
As the March 2 Financial Assessment (FA) implementation date draws near, industry analysts are tracking the changes, anticipating even more interest from borrowers this month.
In January, the number of reverse mortgage counseling sessions increased 21% from December, or 15.3% on a working day basis, according to data collected by Ibis Software Corporation.
The number of counseling clients logged each week that month shows a steady increase, starting at 1,671 for the week of Jan. 5, to 2,129 for the week of Jan. 26.
In preparation for this increased interest, counseling agencies have been ramping up their training efforts, investing considerable time and resources to help staff adjust to the new Financial Assessment guidelines.
But this month will see even more borrower interest, says Ibis President Jerry Wagner.
“I expect counseling sessions to pick up materially over the next couple of weeks,” he says.
In fact, the number of reverse mortgage case numbers issued this month could double, as borrowers take action before the Financial Assessment is implemented, says John K. Lunde, president of Reverse Market Insight (RMI).
“Given that we’re seeing what I would consider a major change to the program with accompanying major change to the borrowers’ available funds, I think it’s reasonable to expect roughly double the case numbers issued in February ahead of the March implementation of FA,” he says.
The average total of case numbers issued in September and November — the most recent months for which data is available — is 7,750, meaning that if there is a large increase this month, the number of case numbers could top 15,000, nearing record highs.
“If we get over 16,006 then we’d have the highest total since September 2009 and likely the second highest total ever for the program,” Lunde says.
Previously, there have been comparable events that have led to case number issuance surges, he says, noting three instances in particular.
Measuring the increase against the average of the prior three months, the industry has seen jumps anywhere from 46% for the minor tweaks to principal limit factors (PLFs) in October 2010 to 118% ahead of the initial utilization restrictions going into effect in September 2013, he says.
The other more recent change last August saw a 92% jump in case numbers issued for August 2014 as PLFs rose slightly for most borrowers and fell for some younger borrowers.
“In the past we’ve seen similar activity trends ahead of PLF reductions when borrowers could get more money by counseling and getting a case number issued before the effective date,” Lunde says. “The same principle is in place here with the added incentive of some borrowers being completely disqualified from the program under the new rules.”
Because of that risk, some borrowers who may have been on the fence about getting a reverse mortgage are now taking action.
While some lenders aren’t expecting the Financial Assessment to have a huge impact on loan volume, many are still experiencing an increased interest from borrowers.
Mike Gruley, director of reverse mortgage operations at 1st Financial Reverse Mortgages, a division of Success Mortgage Partners, says he’s seeing a spike in the number of calls from prospective borrowers.
“Interest may not relate to an application, but we are getting more calls. There’s more interest because people are concerned that they may not qualify,” he says, noting that 90% or more of borrowers with 1st Financial would still qualify after the Financial Assessment takes effect.
Still, this surge in interest may not equate to a surge in closed loans, Lunde cautions.
“Part of the challenge in the past is that many of these ‘surge’ cases don’t turn into loans, so we might get a jump in funding and endorsement volumes, but it has generally been much smaller than the [increase in] case numbers issued,” he says.
Written by Emily Study