Where Financial Assessment is Impacting Reverse Mortgage Volume the Most

After three solid months of inflated volume, endorsements for Home Equity Conversion Mortgages (HECMs) finally felt the impact of the Financial Assessment in September. But while the industry saw volume drop nearly 19% during the month, the post-FA fallout hit some markets hard, while others actually saw production increase.

Endorsement volume rode high during the three months before September, propelled by a rush among borrowers getting HECM case numbers before the new underwriting requirements of the Financial Assessment took effect April 27.

Although endorsements reached their highest monthly level seen since July 2013 during this time—August’s 5,750 loans—September was the first month to reflect the Financial Assessment’s true effect on volume, given the lag times between funding and endorsing loans, according to the most recent industry data tracked by Reverse Market Insight (RMI).

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The impact was widespread, with nearly all regions seeing HECM endorsements decline in September—except for the Rocky Mountain region, which held steady with 231 loans during the month.

Among the cities seeing the biggest decline in monthly HECM endorsements was Honolulu, Hawaii which saw volume fall 67.7% in September to just 10 loans, compared to the 31 units reported in August. Year-to-date, Honolulu’s endorsement volume was down 3.9% at 148 loans through September. Last year at this time, the city reported 154 units.

But the city wasn’t alone, considering every other market in the Pacific/Hawaii region reported volume declines, with Los Angeles—the region’s largest producer—down 37.8% in September to 338 loans, compared to the prior month’s total of 543 loans. Overall, volume for the region was down 31.7% in September to 1,427 loans.

The impact of the Financial Assessment on HECM endorsements were also felt strongly up the Pacific coastline in Seattle. The Northwest/Alaska region’s top market in terms of loan count, Seattle reported 100 loans in September, representing a 47.6% shortfall from August’s 191 loans. However, despite the monthly drop, Seattle’s 2015 year-to-date endorsement tally of 876 loans is 27.9% higher than where it was for the same period last year.

Overall, HECM endorsements in the Northwest/Alaska region declined 38.8% in September compared to August, dragged down by lower endorsement volumes from Seattle, Portland (-38.3%), Boise (-23.5%) and Spokane (-13.3%). Within the region, only Anchorage reported higher volume in September, rising 20% to 12 loans.

Although nearly all of the regions tracked by RMI posted endorsement declines in September, there were some markets that bucked the trend.

The Rocky Mountain region’s steady endorsement numbers were bolstered considerable growth in half of its six markets and small declines among its biggest cities.

Namely, it was Sioux Falls, S.D. that saw the most substantial increase, more than doubling its volume from two loans in August to five in September, representing a 150% increase.

Casper, Wyo., which also reported five loans during the month, saw endorsements grow 66.7% from three units in August; while Helena, Mont. reported 21 loans, or 10.5% higher than the 19 loans recorded in the prior month.

The region’s largest markets, Denver and Salt Lake City, declined 0.8% and 4.9%, respectively in September.

Elsewhere, another notable growth story happened in Bangor, Maine. In September, the market produced 29 loans, signifying a 141.7% increase from the prior month’s total of 12 units.

Also of note in the New England region, Providence, R.I. grew endorsement volume 125% to 18 loans, up from eight the prior month.

Written by Jason Oliva

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  • Interesting stats but hardly the full impact of financial assessment we are yet to see. How we know how endorsements will do in the next three months ahead will largely be governed by the total case numbers assigned during June, July, and August 2015; this is based on the four month rule of thumb generally accepted in the industry as the time lag between the date the average endorsed HECM receives a case number and the date it is endorsed.

    The total case numbers assigned during the three month period ended August 31, 2015 have never been this low since the three months ended August 31, 2004. HUD has not yet released the total case numbers assigned during September 2015.

    With conversion rates hovering at a little under 60%, it is expected that during the three month period ending December 31, 2015, at least one of those months will see endorsements under 4,000. We did not have a single month during fiscal year 2015 where the total endorsements of any one month was less than 4,273 but during fiscal year 2014 (our worst fiscal year for endorsements in the last ten fiscal years), three months saw endorsements of less than 4,000.

    The way things are going, we can expect that fiscal years 2012 through 2016 will be the five worst fiscal years for HECM endorsements since fiscal year 2005. The trend in case numbers assigned since May 2015, shows absolutely no sign of significant levels of recovery to the endorsement numbers we saw during fiscal year 2015. For example, case numbers assigned in June, July, and August 2015 are as follows:

    Month —– Case Numbers Assigned

    June ———- 6,183

    July ———– 6,364

    August ——- 6,089

    Total endorsements during the calendar quarter ended December 2015 should be right around 12,000 endorsements. Not exactly the best way to start off endorsements in a new fiscal year.

    • Agreed! And this doesn’t show all the loans that will be denied by FA. My company has 38% denials, and of the ones that do qualify, 35% have LESAs. This is a 55% impact when we are trying to fix a 10% default rate.

      • Mr. Stevenson,

        Who do you work for?

        As to your stats, the percentage getting through with no financial assessment impact is only 40.3% (which is the product of 62% times 65%). That means that 59.7% of all apps at your company are impacted by financial assessment. 38% of that 59.7% are denials and 21.7% have LESAs.

        It has long been my personal position that our financial assessment is overkill. You discuss the 10% default rate but as of yet there is no evidence that financial assessment has alleviated that number any more or less than reduced PLFs, first year disbursements limitations, better economic conditions, or some other unobserved factor. But a 21.7% LESA rate for ALL applications (denied or not) is horrible.

        One thing you did not mention is whether the apps you mention do or do not have case numbers assigned. I assume that is all apps before case number assignment.

      • Hi James, We are the top broker in Florida, PS Financial. Its 35% with LESA of the 62% that are not denied, or not accepted by the LO because of income, or not canceled by the borrower once they are told they have a LESA of 200k when the PL is 250k (true story).
        I’ve seen borrower get denied for a $60 charge off that they paid, when everything else is perfect and income is $3000/mo, and someone else with perfect credit and income but they were late on a $1.41 HOA payment they didn’t know about.
        There is no common sense underwriting, and they entire FA needs to be revised to deny 10-20%, not what it is today.
        Thanks!

      • Mr. Stevenson,

        Do you have a verifiable source that the default rate due solely to non-payment of taxes or insurance ever got above 10%?

        It is extremely important to know if the application denial rate your firm is experiencing is before or after case number assignment. If it is before, that is among the lowest such rates in the country. The conversion rate is now under 60% meaning the combined denial and drop off rate AFTER a case number is assigned is now over 40%.

        In some places, a fully funded LESA could potentially be higher than the related principal limit. In those cases, generally 1) the youngest borrowers are in their early 60’s, 2) property tax rates are 3% or higher, and 3) flood insurance premiums are among the highest in the country.

      • James, I cant read your entire comment, not sure why. Please email me to discuss further:

      • Mr. Stevenson,

        Please click (or double click) below the comment onto the words “see more” and the comment should open up for you. Please let me know if you have any problems.

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