The Road Backwards: Reverse Mortgage Industry Outlook in 2016

New policy changes for the Home Equity Conversion Mortgage (HECM) program in recent years have had a lasting impact on the reverse mortgage sector. As the industry continues to adapt within the new marketplace, they face one of the lowest years for volume in recent memory.

Just how low industry volume will finish in 2016 depends on what happens with application and loan funding activity during the third and fourth quarters of this year. But with the first six months of 2016 already in the books, the second half outlook appears to put the reverse mortgage industry below the year-end volume total of 2015, as well as other recent years.

HECM endorsements totaled 20,871 units year-to-date (YTD) through May 2016, a decrease of 9.4% compared to this time last year, according to the latest HECM Trends report released by RMI this month.

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While the June report has not yet been released, doing the math, YTD endorsements through the first six months of 2016 will total somewhere in the range of 24,600 units—putting the reverse mortgage industry on track for one of the lowest calendar years for volume in recent history.

“The industry has struggled to recover significantly from the Financial Assessment,” said John Lunde, president of Reverse Market Insight (RMI). “It has definitely been a long time since we were this low halfway through the year.”

Full calendar-year endorsements peaked in 2008 at approximately 115,000 units, according to industry data tracked by RMI over the years. Since then, volume has been on a steady decline with a few hiccups along the way.

One of those hiccups occurred in 2013, when endorsements totaled 60,929 units during the calendar year, representing an increase of 15% from the previous year’s annual tally. The next year, endorsements plummeted to 52,949 units—a level not seen since 2012, when the industry finished the year with 52,992 loans.

Whether 2016 volume sinks lower than 2015, or falls further from recent year-end totals, remains to be seen as the year unfolds. Even comparing YTD endorsements through the first six months of the year doesn’t offer much insight as to how volume will shake out during the second half of the year.

The road backwards

It goes without saying that the first six months of a year differ from the last six months. Seasons change, temperatures cool down, and big-time holidays like Thanksgiving and Christmas punctuate the culmination of yet another year come and gone.

As for reverse mortgage volume, endorsements collected during the first half of the year don’t necessarily set the pace for what happens in the latter half. If the results from recent years can serve as any indication, volume is typically lower in the second half of the year compared to the first half, though there have been a few exceptions.

One such exception in recent years was 2010. A big year for volume—relative to recent years—2010 finished the year with about 72,748 total units, according to RMI data. Most of this total amount came from 36,932 units produced in the second half of the year, while the first six months totaled 35,816 units.

The trend of higher endorsements during the second half of the year didn’t hold up in the years following 2010, although last year was close, with 28,343 units reported during the first half and 28,020 units during the second half.

To compare what’s happening this year with a point in time closer to today’s endorsement production, rewind to 2005. Back then, endorsements came in around 48,400 units for the year. Through the first six months, volume was just under 21,000 units, according to RMI.

“Thinking about 2005—we were on the way up,” said Lunde, noting that the industry was on the upswing both in terms of heading into the second half of the year, as well as seeing a huge uptick to 85,600 units in 2006 and then 108,287 units in 2007. “The second half of the year was considerably better than the first half to get us to 48,400 units—almost over 30% better than the first half.”

This year resembles a “flatter shape” to endorsement volumes—not so much a repeat of 2005 levels, Lunde said.

“It’s just kind of where we are on our road backwards—we’re now back to 2005 levels in 2016,” he said.

Looking ahead

Apart from endorsements, RMI also tracks data on HECM applications and funding activity. Based on its data collection, Lunde said he hasn’t seen much evidence that could possibly lead to significant volume growth in the coming months.

“I’d be surprised if we saw any significant increase in endorsement volume in the next three months,” he said. “Fourth quarter endorsements will be based on what happens in Q3 here. Depending on what we see in Q3 on the application and funding side, Q4 could be better.”

Even though the data suggests 2016 is likely to be one of the lowest years for HECM endorsement volume in the last decade, demographic potential, including the vast amount of home equity held by age-qualified prospective borrowers, presents a multi-trillion-dollar opportunity for retirees to tap into their housing wealth.

Homeowners age 65 and older command $3.1 trillion of the nation’s accessible housing wealth, representing approximately 44% of the $7 trillion in net housing wealth that is accessible among American homeowners, according to an Urban Institute study published this month.

A self-admitted optimist, Lunde views the future of the reverse mortgage industry from a long-term perspective.

“You need to survive the short-term to get to the long-term,” he said.

The problem is no one really knows what will be in store for the industry over the long-term. There is, however, some reassurance in the demographic trends posed by aging of the U.S. population and the growing number of households that could potentially benefit from reverse mortgages.

“There is certainly an increased awareness [of reverse mortgages] and it seems as though a lot of the PR struggle has been considerably better and much more positive lately,” Lunde said. “Over time, we’d expect both of those things to lead to higher numbers of loans being written, but I don’t have any crystal ball that tells me when that will start happening.”

This edition of the RMD Report is sponsored by national appraisal management company Landmark Network.

Written by Jason Oliva

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  • The following statement is interesting: “The industry has struggled to recover significantly from the Financial Assessment,” One must ask, where is there any recovery? So far all indications from fiscal 2016 endorsements show the worst endorsement volume for any fiscal year in more than a decade. Using the calendar year to explain the lack of recovery when it is more mixed than other 12 month periods after April 26, 2015 is a questionable analytical practice. Also coloring results is not normally the job of analysts.

    While RMI reports endorsements on the calendar year, the official annual reporting by HUD to the public and Congress is by the fiscal year ended September 30. Since most lenders use the calendar year for business purposes, RMI understandably and specifically tracks these totals. To understand whether or not there is recovery, it is best to use the cleanest 12 month periods available which by happenstance is the fiscal years ended September 30, 2015 and ending September 30, 2016.

    In 2015, the vast majority of HECM endorsements, for which financial assessment was not required, received their endorsements before October 1, 2015 based on the four month lag rule (the time for the average endorsed HECM to go from case number assignment to endorsement). In fact the tail of HECMs receiving their case number assignment before April 26, 2015 and endorsed more than four months later can be seen in the September 2015 endorsement total which was 4,671 while case numbers assigned in May 2015 were just 4,184 and the modified annualized conversion (applications with case numbers assigned turning into endorsements) rate was just 59.5% for the fiscal year 2015.

    Significantly fiscal year 2015 only had a relatively small number (between 2% and 3%) of HECMs obtain endorsement where financial assessment was required. On the other hand no more than about 2% of HECMs endorsed in fiscal 2016 will not be required to be subjected to financial assessment. While calendar year 2016 will be all but free of endorsed HECMs that did not have financial assessment, calendar year 2015 has at least four months of endorsements where financial assessment was required and eight months of endorsements where financial assessment was not required. So the best one can say about calendar year 2015 is that as to HECMs receiving endorsements most did not have financial assessment but a very substantial number did.

    So to understand how financial assessment has hit the industry, look at fiscal year information for 2015 and 2016. As to recovery, those 12 month periods give us a clearer picture than endorsement information for calendar years 2015 and 2016. What is true is that to date the industry has not managed any recovery from the loss of business that resulted from financial assessment.

  • Reading this post and remembering a Richard Wolff article in The Guardian on July 28, 2011, I wanted to exclaim: “Recovery, what recovery?” The article by the same name as in the quotation marks is posted at

    https://www.theguardian.com/commentisfree/cifamerica/2011/jul/28/useconomy-economics

    The following is a sentence from that article with changes by me.

    “The so-called” endorsement “‘recovery’ since” late 2015 “was chiefly hype, a veneer of good news to disguise and minimise the awful underlying” endorsement “realities” (sic). Yes, my conclusions are very much in line with that heavily edited quotation.

  • I’m not great with math but somehow 52,949 units seems smaller than 52,992. If that is true, then how is the following quotation true? “… in 2013… endorsements totaled 60,929 units during the calendar year….. The next year, endorsements plummeted to 52,949 units—a level not seen since 2012, when the industry finished the year with 52,992 loans.”

    But then I went to the RMI report for January 2015 and it showed that the actual endorsement count for the 12 months of calendar year 2014 was just 52,754 not the 52,949 claimed above. So what is up? Why is John telling us a total that does not tie to the report he gave us over 18 months ago? One could easily reach the conclusion that this is just another way to hide how bad things really are.

  • If we are going to be factual about calendar year 2014 endorsements, they were 52,754 endorsements per RMI not the 52,949 presented by the author. The comparative volume for other years is not that vague since the total for calendar 2014 has not been lower for any calendar year since calendar 2005, now over a decade ago.

    Mr. Lunde from RMI states: “Even comparing YTD endorsements through the first six months of the year doesn’t offer much insight as to how volume will shake out during the second half of the year.” While that is true, besides having the monthly endorsements for the first seven months of 2016, HUD has also provided monthly Case Number Assignments for both April and May, 2016. Using a conversion rate of 63%, the estimated endorsements for August and September 2016 added together is 8,400 endorsements. Total endorsements actual endorsements for the first seven months of calendar year 2016 is 28,183. Add the estimated total for August and September and the nine month total for calendar year 2016 is about 36,600.

    The estimated total needed to exceed 50,000 is 13,400 and to exceed the total for calendar year 2014 will take about 16,155 more endorsements in the last three months of this year. If we use a conversion rate of 63% that means that case number assignments for June, July, and August will have to average about 7,100 case number assignments per month just to reach 50,000 endorsements for this calendar year. To exceed the endorsements of calendar year 2014, we will need an average of about 8,550 case number assignments per month.

    The last time we have seen over 7,100 case number assignments on average for the same three month period was June, July, and August, 2014 when there was a flood of case numbers assigned due to the August 4, 2014 change in principal limit factors. To find that same three month period equaling or exceed in an average 8,550 per month in case numbers assigned, we have to go back to 2011.

    While there is some likelihood of exceeding 50,000 endorsements for calendar year 2016, it is much harder to realistically see the endorsements of calendar year 2016 exceeding the endorsements of calendar year 2014, making both calendar year and fiscal year 2016, the worst 12 month endorsement totals in over a decade. Perhaps all of this speculation is in vain because the actual endorsement numbers for 2016 will turn out much better than predicted but where those endorsements will come from is hard to imagine.

  • While there is clearly a problem with the supposed calendar year total endorsements for calendar year 2014, it is as it should be lower than the total for fiscal 2012, causing us to look all the way back to calendar year 2005 to find a lower calendar year total. Thus calendar year 2014 total endorsements is currently the worst such total in over a decade.

    Even though Mr. Lunde is a self-admitted optimist and I am a realist with a positive outlook, his short-term view of the industry is not much different than mine. As to his long-term view of the industry, I cannot find enough space to place even a dime between them.

    It seems both Mr. Lunde and I see calendar year 2016 as most likely ending up as the worst calendar year endorsement total since calendar year 2005. Hopefully it will not be worse. As to fiscal year 2016, there is little way to see total endorsements reaching 50,000 endorsements thus making it the worst fiscal year total since fiscal 2005 which is more than a decade ago.

    The unanswered question before us is whether either fiscal and calendar years 2016 will become floors going forward? It would seem so but there is absolutely nothing to indicate they will be established this year.

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