Reverse mortgage lenders handily beat 2016 endorsement totals last year, aided by the rush to lock in principal limit factors ahead of major changes in October, but a predicted crash is close on the horizon.
Federal Housing Administration-approved lenders logged 56,912 endorsements during calendar 2017, according to the most recent data from Reverse Market Insight. That’s a substantial gain over the 48,794 from 2016.
Industry giant American Advisors Group once again topped the leaderboard, turning in 12,778 Home Equity Conversion Mortgages — more than double second-place Finance of America Reverse with 5,406. Reverse Mortgage Funding, Liberty Home Equity Solutions, and Synergy One Lending rounded out the top five.
The top 10 lenders combined for 38,313 loans, or 67.3% of the total.
The September surge of borrowers racing to beat the Department of Housing and Urban Development’s October 2 principal limit factor overhaul was a major contributor to the uptick in 2017, according to RMI founder and president John Lunde.
“That creates a rush in Q4 on fundings, and then that’ll create endorsements starting in Q4, which we started to see in November, December, [and] probably continues through January,” Lunde told RMD.
But after the surge comes an expected fall: Last year, Lunde pegged the predicted drop-off in endorsements at about 25%, but he now tells RMD that it could be as high as 30% as the landscape makes things more difficult for certain borrowers. For instance, Lunde pointed out that expected rates have declined only slightly since the disappearance of the 5% rate “floor” after the new rules took effect.
“That implies that the pricing in the market is basically accepting the majority of the PLF cut as opposed to choosing to take an expected rate cut and a margin cut, and avoiding more of a PLF cut,” Lunde said.
As a result, a hypothetical borrower who owed 49% on an existing mortgage could still close on a HECM without bringing any money to the table, Lunde noted. But under the new rules, that same borrower might have to supply 6% to 7% to make the deal work, a potential turn-off.
“I think that still means we’ll see a significant hit,” he said. “I’m not sure what it is. I think 30-ish percent is as good of a guess as any.”
Written by Alex Spanko