Data Points to Potential Bottom for Reverse Mortgage Market Plunge

A week after releasing bleak data for March, the industry’s top volume-analysis firm indicated that May might signal the nadir of the post-October 2 slump.

Endorsement growth among Federal Housing Administration-approved lenders actually increased by 0.4% last month, Reverse Market Insight reported this week; the 3,359 Home Equity Conversion Mortgages endorsed in May represented a 14-unit increase over April.

“This is the biggest sign yet that HECM volume may have bottomed following the substantial program changes that took effect Oct. 2, 2017,” the Dana Point, Calif.-based firm noted in its monthly analysis.

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The effect of the changes, which saw principal limit factor cuts along with an overhauled mortgage insurance premium structure, have been apparent since January, when the first wave of endorsements from the pre-change surge hit: That month saw 6,313 endorsements, a significant increase over previous months and the highest total since March 2011.

After a robust February, with 5,201 loans, the bottom fell out in March, with numbers dropping below pre-change levels before the very slight uptick in May.

On a lender-by-lender basis, the month also had up-and-down returns: Live Well Financial had a gain of 26.3%, while American Advisors Group surged 13% to generate triple the volume of any of its competitors. Five of the top 10 lenders, however, suffered volume drops in the month, including second-place Finance of America Reverse and fourth-place Liberty Home Equity Solutions. 

Should this truly represent the bottom of the post-October 2 hangover, the pre-change surge will have been relatively brief: March’s volume was already below March 2017, and January’s volume marks the only significant month-to-month spike since the changes took effect.

RMI’s most recent stats come after an earlier report on first-quarter origination data, which showed that year-to-date originations through March were higher than this time last year — but were moving in a downward direction with “tough sledding ahead” for reverse mortgage originators.

Written by Alex Spanko

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  • Still way too early to say there’s a bottom. I would say probably not. This should be viewed more as a pause rather than a bounce (although it could be a dead cat bounce and fall further). The prior month saw such a significant drop that it may just be too hard to beat another month with further lows. Don’t let the numbers fool you. They are terrible. It’s really a case of can it seriously get any worse? My opinion is we will see a +/- 10% range through the end
    of the year.

  • Before questioning the validity of this prediction, let us first give Mr. John K. Lunde and his team at RMI (Reverse Market Insight) their due. For years now, Mr. Lunde has been taking the raw data provided by HUD and summarizing it in a way that originators can make the best use of it even if at times the dates of the related closings on the endorsements being reported by RMI took place 6 or more months before.

    The estimated age of the RMI data is based on the principle that most HECMs take 3 to 5 months to go from CNA to endorsement. The data used by RMI for endorsements by zip code, city, etc. comes from a report HUD posts about 45 to 75 days after the month end for the month in which endorsement took place. RMI usually can summarize that data in just a matter of a few days, if that. The lack of speed in delivering this data is by no means the responsibility of RMI but for identifying actual demand timely, it is somewhat old but again the industry has nothing better .

    Now as to the prediction that the total endorsement information released for May 2018 “might signal the nadir of the post-October 2 slump” it reads like someone grasping for straw. (Jason, thank you for using a word I had to look up — nadir — the lowest point; it is a very useful exercise.) While everyone wants that to be true, there is simply nothing other than jaded endorsement information indicating that is true.

    A little over a year ago, one commentor to a RMD article dated May 11, 2017, wrote: “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.”

    Based on CNA counts for February and March 2018, expect more “nadirs” (not the right use of that word but it drives the point home). Until CNAs reach at least 5,250 for a few months in a row, expect low endorsement counts. The highest CNA count for any month since September 30, 2017 was March 2018 at 4,606. For now I would be happy to see the next three months at above 3,000 endorsements for each of those months.

    There is nothing wrong with RMI opining on future HECM endorsements and HECM endorsement trends but that does not mean if you bet on future HECM endorsement numbers to bet in conformity with their predictions; however, it would be great for the industry if this one time RMI was right.

  • We don’t want to jump the gun and take these projections as gospel. However I have been hearing out there that activity has been better, applications have increasing somewhat with certain shops and the attitudes are becoming more positive out there.

    My friend Jim Veale makes a good case with his comment and statistics, as usual! Never the less, more things are happening, companies and originators are taking a different approach to the industry and with our product.

    The additional good news is that originators and there companies are targeting different markets, going after the professional sector, those that deal primarily in the senior sector market.

    We are starting to see more concentration given to the H4P program. Companies are putting on more training programs for this program as well as teaching their sales staff how to focus on the real estate sector! which by the way, in my opinion, it is about time we did this!

    We are seeing attitudes changing by many in the industry, realizing the HECM is not a loan of last resort anymore. In fact, we can’t be looking at it this way anymore, in order to survive in the reverse mortgage space.

    To sum it up, this all spells good news for us all, providing this kind of momentum will continue. There is no reason why it can’t continue, unless something comes out from HUD and surprises us with another Lemon of a ruling! Hopefully we will not see that occur again for many moons to come!

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

  • It would be interesting to see how the data breaks down as to loan type, i.e. HECM, HECM refi or H4P. My guess is the refi segment is what took the biggest hit – and deservedly so.

    In my practice (real estate sales) it is not unusual to see 3 even 4 HECMs recorded against a property, sometimes with less than a year between successive refi’s.

    Inevitably many of these folks get into trouble and bring me the solicitation letters suggesting they might get another $50K on a refi. Knowing the answer, but out of respect I request a quote to show how much they would need to contribute to obtain a new HECM.

    You loan guys certainly deserve sympathy at having your business kneecapped without warning. But from working on the back end of these loans I see the logic of the recent changes.

    H4P probably has the best potential for growth and is an underutilized product in the RE industry.

    • Hey Lawrence. For HECMs endorsed in April 2018, which just came out today, here’s the breakdown –

      Traditional – 2,924 (87.39%)
      Refinance – 250 (7.47%)
      Purchase – 172 (5.14%)
      Total – 3,346

      To compare with endorsements in April 2017 –

      Traditional – 4,094 (81.33%)
      Refinance – 727 (14.44%)
      Purchase – 213 (4.23%)
      Total – 5,034

      This information is from closings in December/January typically, as most lenders don’t have their loans endorsed for 3-4 months, though that can vary greatly. As we move forward, you’ll see the refinance numbers drop down to essentially zero. There will only be a handful of refis that will meet the NRMLA-issued closing cost test that all lenders follow. It just takes time for pre-October 2017 loans to move through the endorsement pipeline, so we’ll likely have some show up for months to come.

      The industry standard on length between refinancing of HECMs is 18 months. I’d be curious to hear who was doing them in less time than that. Do you have that information to share?

      • The successive refi’s I see are mostly on pre-2014 vintage loans. Many of these folks beginning to have trouble again and unable to acquire another HECM as a bail out.

        Also the Keep Your Home California reverse mortgage assistance fund has dried up so expect to see increasing T&I defaults.

      • Mr. Soza,

        I am a little lost. First, are these HECM Refis? Second, did many of these HECMs being refi’d show a case number assignment before January 2009? Third, is the refi available because of rise in home values?

        Whatever common characteristics of these refi applications can you describe?

    • Lawrence,

      Over the years, we have seen no real increased demand for the H4P product. Per NAR stats, there were over 1.3 million buyers 62 and older during 2017. As to annual endorsement totals, H4P has a tendency to stay about 5% of the total endorsement count for each year.

  • From the counselor’s point of view, at Housing Options Provided for the Elderly (HOPE), which is a national intermediary specializing in HECM counseling, we’ve seen a slow but steady increase in volume of counseling requests and completed sessions starting in January, compared with the dismal numbers from last fall. Our May volume was about double what we did in January. Of course, this doesn’t necessarily translate into endorsements, but it does seem to signal some recovery.

    Question for James Veale: Where do you obtain the CNA figures that you quote? That seems like a very useful statistic, and I imagine the trend would echo what we see at the counseling stage.

  • Been awhile since I paid attention to this industry. These numbers are scary. Glad I got out of the business when I did. Good luck to those who are still trying to make it work.

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