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.
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.
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