Year in Review for Reverse Mortgages: Where Do We Go From Here?

The year 2016 was one that many might soon want to forget, and for a variety of reasons.

The U.S. held its most entertaining presidential race—or controversial, depending on how you look at it. The world said goodbye to Prince, David Bowie and Leonard Cohen—and that’s only the shortlist of icons who left the world all too soon this past year. Oh, and the Chicago Cubs won their first World Series title in 108 years.

So while 2016 will certainly go down in the history books for being an interesting year—to say the very least—the leap year was also historic for the reverse mortgage industry, which saw its share of ups and downs in the last 366 days.

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For the first time in the history of the Home Equity Conversion Mortgage program, the number of HECM reverse mortgages insured by the Federal Housing Administration surpassed the 1,000,000 loans milestone. But perhaps the most haunting trait that will characterize 2016 is that industry volume dipped to the lowest calendar-year total in more than a decade.

Volume tanked

HECM endorsements totaled 44,136 loans year-to-date through November 2016, according to industry data tracked by Reverse Market Insight. And with industry volume trending under 4,000 loans per month this year, it is likely that 2016 will end with under 50,000 units for the first time since 2005, when volume for the calendar year was roughly 48,000 loans.

For 2016, lower volume was still very much the result of the Financial Assessment and upfront draw limitations during the first year of the loan—two rules that similarly reduced the population of needs-based HECM borrowers who were most urgently in need of immediate cash, said John Lunde, president and founder of Reverse Market Insight.

“That was always a chunk of the market the industry has been making a lot of effort to move away from, but forcibly removing that segment from the market has had a volume impact,” Lunde told RMD.

Looking ahead to the immediate future, FHA’s recent decision to raise the HECM lending limit to $636,150 may not have a noticeable impact on industry volume in January, Lunde said, since the new limit is less than a 2% increase from the previous level of $625,500.

“Thinking about how this changes from an industry dynamic perspective, loans at the top end might be slightly larger than they otherwise have been, but it’s not going to make a noticeable difference,” he said.

If 2016 does indeed finish with roughly 48,000 HECM endorsements, the bright side is that’s a fairly low bar for volume that isn’t insurmountable for the industry to overcome in the coming years.

“The industry has always been resilient and has grown in the face of a lot of challenges in the past, but I would think the industry could show growth and beat that 48,000 number,” Lunde said.

Opportunities for the year ahead

Growing the industry from a volume perspective will require a number of efforts, not the least of which is the continued appeal to the financial planning types of uses for the HECM product.

This also requires broader educational outreach to “kindred professionals” also working with a senior and retiree clientele, says Jenny Werwa, director of public relations for the National Reverse Mortgage Lenders Association (NRMLA).

This year, NRMLA held its inaugural Reverse Mortgage Education Week, a weeklong event where the association hosted a series of webinars to teach non-industry professionals, such as real estate agents, financial advisers and health care workers about how a reverse mortgage could potentially serve their clients.

“It’s important to reach out to these kindred professionals who work with older adults and be able to talk with them about reverse mortgages,” Werwa said. “We realized in this type of outreach that there is a lot of opportunity for NRMLA to be be doing this again going forward.”

In 2017, NRMLA plans to return with Education Week in during National Financial Literacy Month in April, an appropriate time of the year for facilitating conversations about reverse mortgage.

“During Financial Literacy Month, we want to be part of the conversation about how housing wealth can be a valuable safety net,” Werwa said.

Education will certainly be a continued focus for the industry as it strives to clear up misconceptions and teach consumers and their trusted advisers about the validity of incorporating housing wealth into a retirement income plan.

Changing people’s minds about reverse mortgages will be a slow burn with little results to show for these efforts in the short-term. But even with this undertaking, the industry isn’t alone.

This year alone has already seen a plethora of research reports, studies and policy recommendations from various academics, retirement income professionals and bipartisan commissions—all threading together the central idea that home equity and, specifically, reverse mortgages can play a vital role in addressing the biggest retirement challenges facing older adults.

“It has been helpful that we’ve had a lot of academics and financial advisers publicly support the reverse mortgage product over the last 12-16 months,” Werwa said. “Seeing groups like the Bipartisan Policy Center and Harvard Joint Center for Housing Studies coming out with research and including reverse mortgages among their recommendations is helpful to our industry going forward.”

Written by Jason Oliva

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  • The following statement is inaccurate: “But perhaps the most haunting trait that will characterize 2016 is that industry volume dipped to one of the lowest calendar-year totals in more than a decade.” Calendar year 2016 was NOT just one of the lowest years for HECM endorsements in over a decade. It was THE lowest HECM endorsement total for any fiscal or calendar year in more than a decade and for the first time in more than a decade the total did not even reach 48,800 endorsements (at 48,794 per RMI).

    “For 2016, lower volume was still very much the result of the Financial Assessment and upfront draw limitations during the first year of the loan—two rules that similarly reduced the population of needs-based HECM borrowers who were most urgently in need of immediate cash….” While financial assessment did in fact greatly impact most of calendar year 2016, it is far less likely that what brought endorsements down in calendar year 2016 when compared to the prior three calendar totals had anything to do with the first year disbursements limitation rule. That rule went into effect on 9/30/2013, 9/30/2015.

    On December 30, 2016, we knew the endorsement count for calendar year 2016; it was posted on HUD’s website. Why are estimates being used in the article? Perhaps it is article deadlines or other publication difficulties but it is available.

    We also have case number assignment totals for both September and October 2016 which with the modified conversion rate for calendar year 2016 should help us understand how calendar year 2017 will start. By the last week of January, HUD should post case number assignments for November 2016, which will provide a reasonable basis to estimate total HECM endorsements for the first half of fiscal 2017. Right now it can be said with a relatively high degree of confidence that endorsements for first five months of fiscal year ending 9/30/2017 will total about 21,300 endorsements, which is about 51,100 for fiscal year 2017 when annualized (a somewhat inaccurate method of HECM endorsement prediction). Unless significantly positive changes are made to the program, one would expect the HECM endorsement total for the fiscal year 2017 to be less than 55,000 and perhaps as low as 48,000, a 7,000 endorsement range.

  • I just got through reading the article that Jason wrote and I just got through reading The_Cynic’s comments.

    I do agree with everything The_Cynic has said, in fact it was very well stated right to the point and especially about the necessary need for significant positive changes made to the HECM program.

    I also feel and agree with The_Cynic that we could see HECM endorsement for the fiscal year of 2017 to be less than 55,000 and as The_Cynic said much lower!

    The actuary tables need to be adjusted, the floors and indexes need to be looked at very carefully and I could go on and on. These changes must be looked at and made quickly,

    The LTV levels are way to low and will become worse using the rate valuation table we are on. The market can’t hold out with the margin being held down so much in order to try and I mean try to hold the principle limit amounts to a half way realistic level. Also, we have to be extremely concerned about the secondary market and its ability to hold strong!

    Why have we waited so long and to this point in time to face reality. The_Cynic could not be more blunt, truthful, to the point and more accurate in his or her statement, period!!!

    We have more opportunities today in the reverse mortgage space with seniors, financial planners/advisors along with small community banks and credit unions than we have ever before but without the changes I spelled out and what The_Cynic has pointed out, those opportunities are going to be thrown out the highest window in the White House in Washington, DC my friends!!!

    That is my Happy New Year statement for today. I am glad you published this article Jason, hope many read our comments!!!

    John A. Smaldone
    http://www.hanover-financial.com

  • First, congratulations to all those participating in the origination and endorsements over the last for reaching 1 million HECM endorsements.

    In this supposedly optimistic message, there is several troubling statements including the following: “..with roughly 48,000 HECM endorsements, the bright side is that’s a fairly low bar for volume that isn’t insurmountable for the industry to overcome in the coming years…” Why this is so troubling, is that there is no direction, vision, or path to pragmatically apply. The same quotation could have been made in late 2010 replacing the fiscal year 2016 endorsement total with the fiscal year 2010 total endorsements and in the same manner the quotation adjusted in late 2011, late 2012, late 2014, and late 2016.

    Everyone was so sure that we could overcome the loss in endorsements in fiscal 2010 that when a NRMLA speaker said that we would bring over 100,000 endorsements in fiscal 2011, the entire audience rose in applause, shouts, and cheers. We all know the results. Again, no path, no direction, and no vision as to how that can be achieved.

    The article above had a little path but no real direction or vision. It lacked substance and once again accountability. In fact no system was formerly adopted or even suggested as to how the information would be reasonably and verifiably gathered and reported back to the industry. Goals with no road to achievement and lacking accountability is a goal which will not be achieved.

    What was surprising about the quotation above is how it ended how directionless it sounds: “..with roughly 48,000 HECM endorsements, the bright side is that’s a fairly low bar for volume that isn’t insurmountable for the industry to overcome in the coming years.” “… in the coming yearS,” really? Plural years??

    We can do better than that. Does the quotation sound like the kind of industry you want to be associated with? Or reworded, “oh, yeah, our endorsements fell 15% last year but in the years ahead in some way or another, we will break through that that number.” What kind of message is that?

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