Reverse Mortgage Endorsements Hit Highest Levels Since August ’13, But…

The good news about reverse mortgage endorsement volume keeps coming, but as always, there’s a slight hitch to consider before declaring that the industry has awakened from a prolonged numbers slumber.

According to the latest data from Reverse Market Insight, Home Equity Conversion Mortgage originators generated 5,355 endorsements — including both Federal Housing Administration-approved lenders and their non-approved counterparts — in March 2017, the most recent month for which the statistics were available. That’s the best single month for endorsement volume since August 2013, RMI founder John Lunde told RMD in a phone interview Thursday.

March 2017 was also the first since December ’16 that saw both retail and wholesale growth from the previous month, with gains of 16.7% and 26.3%, respectively; in the early going of 2017, the channels had previously traded off gains and declines.

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On its face, RMI’s “HECM Originators” report seems to bolster the positive news that has been trickling out of the Dana Point, Calif.-based research firm’s regular data updates. As RMD reported last week, RMI’s “HECM Lenders” leaderboard, which tracks only FHA-approved firms, showed nearly 800 more endorsements in April 2017 than at the same point in 2016; the all-inclusive HECM Originators report lags a month behind the FHA-only lenders list.

“It also adds a little credibility to March’s volume level, since any single month can be heavily influenced by one or two larger lenders catching up on endorsements,” RMI commented at the time.

When reached Thursday, Lunde reiterated that month-to-month gains or drops don’t necessarily signal a sea change in the industry’s endorsement fortunes, as they could simply be the result of a released backlog — and even two months strung together aren’t enough to declare victory over the industry’s volume malaise.

“I know I talked to a couple of lenders, and they were catching up on endorsements, loans that had they’d funded but just hadn’t devoted the manpower to get them endorsed,” Lunde said.

He also noted that he hasn’t heard of a related rise in demand for HECM counseling sessions or bumps in case number assignments, factors that could signal an end to the recent string of good news. Of course, we won’t know if this is a Potemkin push until much later in the spring.

“It was more sustained in April than I was expecting, so if we see May come in and be back down to the usual levels, then I think we’d call it endorsement catch-up,” Lunde said.

“I guess it’s possible that March jumped and might sustain us a little more,” he continued. “I would bet against it right now.”

See RMI’s full report here.

Written by Alex Spanko

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  • “The good news about reverse mortgage endorsement volume keeps coming….” “On its face, RMI’s “HECM Originators” report seems to bolster the positive news that has been trickling out of the Dana Point, Calif.-based research firm’s regular data updates.” This is the assessment of what RMI is saying about endorsements for the last few months.

    It seems RMI keeps pushing the envelope of interpretation about future endorsements. In a September 25, 2012 RMD article, RMI claimed that there were signals of recovery. Of course fiscal 2012 was the second worst year for losses on endorsements on record on both a fiscal year and calendar year basis. Fiscal year 2013 did have higher endorsements but fiscal 2013 was the start of secular stagnation, not recovery. Then in a 8/19/2015 RMD article, RMI once again states that recovery may already be under way; of course that never transpired.

    Now in this article, RMI is equivocating on what its message of good news on endorsements for the last few months should mean. Quite frankly, we would all be better off if RMI reported the entire endorsement picture than pick out the good “stuff.” Like the RMD article above it gives the impression that things are changing for the better when that may not be the case. It almost reads like giddy optimism or irrational exuberance. Realistic assessments may not result in optimism but they do result in less equivocation.

    Right now we are in secular stagnation and there is absolutely nothing in the endorsement numbers since October 1, 2016 that demonstrates we are out or coming out in fiscal 2017. In this pattern of secular stagnation we would expect total endorsements for fiscal 2017 to be about 56,000 before dropping to about 45,500 endorsements for fiscal 2018. After seven months the total for fiscal 2017 is just 31,900 which is a lower total than is needed to be on pace to reach total fiscal year endorsements of 56,000 by September 30.

    But, no recovery is in sight and let us not get caught up in giddy optimism. Only a few applications with case number assignments dated after 5/31/2017 will be endorsed in fiscal year 2017. That leaves less than 3 weeks to get as many applications through case number assignment as possible before 6/1/2017 or see them most likely endorsed in fiscal 2018.

  • The information in the article above is somewhat disturbing. While we do not need to be overly discouraged in a period of stagnation neither do we need to be Pollyannas always trying to find recovery.

    In the industry we have experienced three periods of stagnation; some might say even more. It is hard to count the ramp up period from inception to the end of fiscal 1998 as anything other than a period of incubation and initial growth. Then in fiscal 1999 through the end of fiscal 2001, we saw endorsements go from 7,896 (fiscal 1998) to 7,982 (fiscal 1999) down to 6,640 (fiscal 2000) and then back up to 7,781 (fiscal 2001). The pattern was erratic but definitely stagnation.

    Beginning in fiscal 2002 and ending with fiscal 2007, we saw a period of phenomenal growth, going from 7,781 in fiscal 2001 to over 107,550 endorsements in fiscal 2007. It is those six fiscal years 2002-2007 that one could call our initial golden age of HECMs.

    Then suddenly in fiscal 2008 and 2009 we hit a plateau of stagnation that saw endorsements go to 112,150 endorsements and then to 114,700 endorsements. Although questionable, many prefer to include these two years as well as part of that initial golden age of HECMs.

    Then came three years of huge drops in endorsements. By the end of fiscal 2011, both Bank of America and Wells Fargo were no longer originating HECMs. In those three years, endorsements fell by almost 60,000, ending in fiscal 2012 at less than half of the endorsement count of fiscal 2009 at 54,900.

    Then suddenly losses stopped in fiscal 2013. We saw total endorsements of slightly over 60,000 in fiscal 2013 but fiscal 2014 once again put fear in the industry as endorsements dropped to 51,650. By fiscal 2015 we were back up to 58,000 but at the end of 2016 back down to 48,900, our lowest fiscal year count in over a decade.

    The five year period of fiscal 2012 through fiscal 2016 is a clear period of secular stagnation in which endorsements go up and down within a limited range. Yet the pattern was a distinctive irregular but downward sloping shaped M. That pattern allows even a less experienced prognosticator to say that the total endorsements for fiscal year 2017 should be greater than that of fiscal 2016 but less than that of fiscal 2015. Looking at the difference in the two peaks in the M pattern we expect fiscal 2017 to come in at about 56,000 endorsements. If that is true, we would expect fiscal 2018 to come in at around 46,000.

    Let us hope that Alex is right. But if stagnation continues, let us not forget, we have seen it twice before and overcome it. What the last decade and a half has proven is that there is absolutely no correlation between the growth in endorsements and the growth in the population over 62 years old. There is no correlation between the home values of those over 62 and endorsement growth or between the growth in home equity of those over 62 and endorsement growth.

    What can we expect total endorsements will be, based on month to month case number assignment and current endorsement information? Using an optimistic view of case number assignments through February 2017 (the latest data for case number assignments posted by HUD) and the current trend in the annualized modified conversion rate that the endorsement total for May and June could be as large as 10% greater than the endorsement total for those same two months last year, results in a total prediction of 40,000 endorsements for the first nine months of fiscal 2017, leading to a simple projection of about 53,500 for fiscal year 2017 or about 95.5% of what conclusion the irregular M shape produces at 56,000 endorsements. Yet we have received no independent information (i.e., the number of case numbers assigned after February 2017) to interpolate what the last quarter of fiscal 2017 will produce. The case number assignment information needed to better project endorsements for the remainder of fiscal 2017 should be available by the end of the next 100 days.

  • Ever since the losses in endorsements in fiscal 2010, we have been hearing about NY Life among others becoming originating lenders in our industry. Then we heard talk of Wells Fargo and even Bank of America returning to the industry.

    As would be expected, actual production kills that kind of speculation. No longer do we hear about major players sneaking into NRMLA meetings to find out what is going on in the industry. It seems like the ultra optimists are doing their excellent job of over hyping industry results.

    Those who want to see how well an experienced lender and servicer can fare in the current HECM environment just needs to look at the model of Walter Investment Management Company. They not only lost ALL of their initial investments in Security One Lending and Reverse Mortgage Solutions but also incurred a huge penalty for past and continuing practices of RMS and even a minor one for Security One Lending marketing practices. They have never had a profit or a year of break even from their reverse mortgage operations. Walter is a tale of woe and WARNING for all of those major lenders looking to join the industry right now.

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