Reverse Mortgage Volume Trends Positive Following Financial Assessment Decline

There have been many measures of the recent decline in reverse mortgage volume following the implementation of the new financial assessment rule that has been in place since the end of April.

From secondary market estimates that show a small downturn in reverse mortgage securities issuance, to case number assignments declining in the months following financial assessment, there is no doubt volume has fallen.

But how much it has fallen is another question. And also: When will volume rebound?

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Between the lag time between application and closing and a roughly two-month delay before loans are endorsed under the Federal Housing Administration, it has been difficult to note an immediate impact of the financial assessment on volume.

Anecdotally, lenders have reported mixed results. Some initially forecast volume would fall as much as 30% or more, while their estimates two months later came in a wide range. Counseling data released in July showed a 12% decline in sessions year over year.

And now, counseling data is showing an even smaller decline in sessions, at roughly 10% to 11% fewer sessions relative to the same time period last year, according to data gathered by Ibis Software Corp.

Industry analysts at Reverse Market Insight say recovery may already be under way, especially relative to other changes weathered by the reverse mortgage industry in past years.

“We’re seeing recovery in some of the early measures like cases issued and applications,” says John Lunde, RMI president, pointing to an uptick in case number assignments in June.

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Source: Reverse Market Insight

And that recovery may take place over a shorter period of time than past volume recoveries relating to other changes implemented by the Department of Housing and Urban Development, namely utilization restrictions implemented in 2013.

“Based on everything we’re seeing thus far, I think it’s fair to say we’re seeing a much faster recovery from [financial assessment] implementation than from the initial utilization restrictions implementation back in September 2013,” Lunde says. “It will still take several months to get back to where we were in March (before the pre-FA surge in counseling sessions, applicants and cases issued), but the trend is positive.”

Written by Elizabeth Ecker

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  • But are case number assignments the only story?

    Using a four month lag time period to go from case number assignment to endorsement, during fiscal 2007, it took 110,335 case number assignments to produce 107,626 endorsements; that is a ratio of better than 97 endorsements for every 100 case number assignments. As of July 31, 2015, and using endorsements for the twelve months ended on that date and the case number assignments for the twelve months ended March 31, 2015, case number assignments totaling 92,216 produced just 54,650 endorsements. That is a ratio of a little better than 59 endorsements for every 100 case numbers assigned. That is a drop of slightly more than 38 endorsements for each 100 case numbers assigned over the last 8 fiscal years.

    So will the conversion ratio for applications with case numbers assigned after April 27, 2015 get better or worse with financial assessment? Listening to rejection anecdotes in the industry one would expect that the endorsement ratio to case numbers assigned will only be worse.

    Relying on old conversion and pull through rates only skews the problem of an overly optimistic view of future production further than it has been. Our industry is maturing and our outlook should be doing the same. Few industry realists expect the conversion rate to be like the world market price for WTI crude and dip into the low forty range for any significant period of time, if at all, but the drop will nonetheless be significant at a time when case number assignments are also significantly dropping.

    It seems as if we will need a more financially sophisticated origination core if we are to gain momentum in the financial advising community and originators who are willing to learn how to meet the needs of the real estate sales community as they arise and work within their time frames. Our product has changed and we must also if we are to further penetrate the senior market.

  • Mr. Lunde correctly points out that the total CNAs (Case Number Assignments) for the first two full months following the addition of FA (financial assessment) is better than the CNAs following the changes which took place on September 30, 2013 BUT for some reason Mr. Lunde does not address the total CNAs for the two months which followed the August 2014 changes which took place just about a year ago. Why does he choose CNA information from almost two years ago rather over CNA information from just one year ago?

    So is the point that Mr. Lunde makes about a change (9/30/2013) where the CNAs in the following two full months were just 16.4% less than those following the April 2015 change all that meaningful when the CNAs for the two full months following the closest change (8/4/2014) were 56.8% higher than the total CNAs for May and June, 2015? Could the 9/2013 changes be more relevant than the August 2013 changes? The problem is no disclosure is provided as to why the RMI analysts selected the older data when more recent data was available to them.

    Are there really trends when discussing May and June, 2015 CNAs? If we are talking about the comparison Mr. Lunde makes, then the conclusions seem far too rosy when looking at the same data for the August 2014 (more recent change). If we are talking about CNAs for June 2015 being substantially higher than those for May 2015, where is the trend? CNAs for one month being better than that of another is not a trend. A trend requires MORE than just June’s CNAs being higher than that of May. To have a rising CNA trend, you would have to have total CNAs in the last two of three consecutive months being greater than total CNAs in the first month and total CNAs for the third month being greater than either of the other two. HUD has not YET posted for public consumption three full months of CNA totals following the April 2015 change. The CNA total for July 2015 should be posted later this month.

    While the tone of this article is far, far less than irrational exuberance, its tone does not seem to be free of bias. It is almost as if conclusions were determined or mandated and then evidence selected “to prove” those conclusions.

    Are we in recovery? It is too early to tell but there is no verifiable information from any reliable data source available to the public that indicates we are.

    We certainly have sufficient reliable and verifiable information to estimate how many endorsements will come from the first two full months of CNAs where the related applicants are mandated to undergo FA. Based on the conversion rate for July 2015 of 59.263% and the 10,367 CNA total for May and June, the expected endorsements are 6,144. Unfortunately that just does not bode well for a meaningful recovery for endorsement totals for either September or October, 2015. Most of us believe things will be getting better throughout fiscal 2016 but what separates us is how quickly we believe that will occur; however, beliefs are no substitute for evidence when it comes to interpreting reliable and verifiable HECM data.

    (The opinions expressed in this comment are not necessarily those of RMS or its affiliates.)

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