HUD: Reverse Mortgage Industry Has “Accepted” Financial Assessment

Huntington Beach, Calif. — The reverse mortgage industry has “accepted” the Home Equity Conversion Mortgage Financial Assessment following its successful implementation over the the last two years, a Department of Housing and Urban Development official said Tuesday, and new loans following the assessment are on the upswing.

The rule was necessary and the outcomes have begun to level off, said Phil Caulfield, housing program policy specialist, home mortgage insurance division for HUD, during the National Reverse Mortgage Lenders Association’s Western Meeting in Huntington Beach, Calif. on Tuesday.

“It is here to stay,” Caulfield said. “It’s a tribute to all of you [industry members] that we have gotten this process under way in only two years. … If we hadn’t done this, there probably wouldn’t be a HECM program. It’s that important.”

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The effects of the Financial Assessment, which resulted in a sharp decline in loan volume reported by lenders due to its more stringent lending criteria, have been realized, and volume is starting to level off, HUD officials continued. The reverse mortgage conversion rate is trending upward based on issued counseling certificates that have become endorsed loans, as well as overall endorsement volume that appears to be on the upswing, according to HUD data.

There were 92,139 certificates issued in fiscal year 2016 and 48,867 endorsed HECM loans, the data shows, resulting a conversion rate of 53%. By comparison, to date in fiscal year 2017, the conversion rate is 61% based on 51,877 certificates netting 31,622 endorsed loans.

“Initially we saw big disparities before and after Financial Assessment,” Caulfield said. “We think that the effect is less [now with] the recent numbers getting closer, getting up into the general range where we have been. [The industry is] doing a better job of screening applicants. That comes back to ‘acceptance.’”

Similarly, reverse mortgage endorsements to date in 2017 have ticked up slightly year-over-year, seeing a 6% increase over 2016.

“It does look like the volume is up a bit in 2017,” said Karin Hill, HUD senior policy advisor for single family housing, noting seasonal factors and lender timing can influence endorsement data.

HUD continues to monitor the performance of program changes, and plans to clarify and implement guidance on the HECM final rule this summer and fall based on a previously announced timeline. In particular, HUD representatives pointed to an increase in the percentage of HECM-to-HECM refinance loans versus recent years, as well as appraisals.

“A major risk to this program is the quality of appraisals,” Hill said.

Written by Elizabeth Ecker

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  • Far more important than counseling certs are case number assignments. The annualized modified conversation rate as of April 30, 2016 was 62.23% and as of April 30, 2017 is 63.77%. While the raw difference is 1.54%, the percentage of increase is 2.5%. The difference and percentage increase is so insignificant as to be dismissed as immaterial.

    The annualized modified conversion rate is the total of all HECMs endorsed in the twelve months ended on a specific month end divided by the total case numbers assigned in the twelve months ended four months before the end date for the endorsements. So the annualized modified conversion rate is the total endorsements for the twelve months ended April 30, 2017 divided by the total case numbers assigned in calendar year 2016.

    Right now the growth in fiscal year to date endorsements is simply in line with the stagnation pattern established in fiscal 2013 and continuing past fiscal year 2016 into fiscal year 2017.

    The increase in total case number assignments for January and February 2017 show a 5% increase over the total for the same two months for last year. That means that the total endorsement count for the nine months ended June 30, 2017 is expected to be about 40,000 which shows growth in line with continued secular stagnation. Again based on the continuing pattern of secular stagnation, there should be little expectation of total endorsements for fiscal 2017 of anything too much greater than 56,000 and most likely less than that amount.

    HUD talked a good game but where is their estimate of endorsements for fiscal 2017? The discussion above is a year to year discussion rather the pattern over a period of years, if that pattern exists as it has in the case of the HECM industry since fiscal year 2013. AND yet overall the current pattern remains downward sloping.

  • Perhaps accepted is far too positive.

    It is more like the industry has endured financial assessment despite tremendous loss in business. While endorsements dropped to the lowest level in over a decade both last fiscal and calendar years, we saw the population over 62 rise by another 3.6 million Baby Boomers. And now about another 3.6 million Baby Boomers will turn 62 in this fiscal year with no appreciable change to the downward sloping stagnation pattern we have seen for the last five years.

    The industry is not drowning but is floundering. Let us hope fiscal 2018 will be better even thought the stagnation pattern projects out to a reduction in endorsements to a round 45,500 for fiscal 2018. For now all we can do is put forth plans to break this pattern of stagnation. For our over optimistic friends, there is no way that fiscal 2018 will reach 300,000 endorsements, if we are very lucky and wok very hard it will be 20% of that amount but it likely to be much closer to 15.2% of 300,000.

  • An interesting side note, as a counselor I have seen a big uptick this year in counselings, but more than 25% of those counseling sessions are for people who are refinancing their HECMs. Many of whom are only realizing only a small gain. They become a safe bet, because they only obtained their HECM 2 to 4 years ago. I am not sure how HUD is factoring that into the calculations, but it would seem to me to be disingenuous to consider it to be a new endorsement.

    By the way, do not get me wrong, I am a firm believer in refinancing a HECM when it makes sense, but I am not for churning them, which is more of what seems to be happening. Most of the people I am seeing for refinancing have seen their house values move up less than $60,000 in the past couple of years.

    Frank J. Kautz, II
    Staff Attorney

    Community Service Network, Inc.
    52 Broadway
    Stoneham, MA 02180
    (781) 438-1977
    (781) 438-6037 fax
    FrankKautz@csninc.org

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