Reverse Mortgage Endorsements Fall Another 22% in April

The reverse mortgage origination numbers continued their plunge in April, dropping even further than the March results as wholesale endorsements again bore the brunt of the drop.

Total volume slid 22.1% in April among both Federal Housing Administration-approved lenders and non-FHA firms, according to the most recent data from Reverse Market Insight. Wholesale endorsements dropped by 25.6% to hit a 12-month low of just 1,350, while retail endorsements dipped 19.6% to come in at 1,996 for the month.

The last time RMI released its full FHA and non-FHA report, originations were down 17.3% on an overall basis, though wholesale had an even worse month with a 28.7% decline — a slide that the Dana Point, Calif.-based firm described as “stunning.”

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April’s results provide a window into just how grim a spring the industry has endured: RMI’s FHA-only data, which was current through the end of May, showed a potential leveling-off with a slight increase of 0.4%. Whether or not the industry has finally settled to a bottom in the wake of the October 2 rule changes from the Department of Housing and Urban Development — which saw lower principal limit factors and an updated mortgage insurance premium structure — remains to be seen, however.

Overall, the origination data for April shows 3,346 loans, down from March’s 4,298 and substantially lower than January, when a single-month post-change spike lifted totals all the way up to 6,308.

Still, RMI identified some reasons for optimism in the bleak data. One Reverse Mortgage logged a second consecutive month of moderate growth with a 3.8% boost, while Longbridge Financial saw a 1.7% gain and Fairway Independent Mortgage turned in 31.9% growth with its 95 loans — adding to its stretch of year-to-date expansion that currently sits at 115.8%.

The usual suspects still top the overall trailing 12-month list, with American Advisors Group leading the way with 13,696 loans.

Written by Alex Spanko

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  • Once again we see some companies’ share of the pie increasing while the pie itself is shrinking. It is very clear now that the overall number of originators has been substantially depleted. Anecdotally I am getting more and more correspondence from former full-time HECM originators who are either sporadically originating HECMs or have left the industry altogether.

    Some have been claiming that we have bottomed out with no more indication than May 2018 having 14 more endorsements than April 2018. I have a hard time hanging my hat on monthly endorsement counts getting better before fiscal year end based solely on that data. Based on endorsement projections I’ve seen for the next few months, endorsements for at least one month before October 1, 2018 are bound to go lower by as much as 25% than the count for May 2018.

    Optimism is a luxury some of us can afford. Others of us make or used to make our living by originating HECMs and just do not have that luxury.

    Also there are humors that FHA will lower PLFs starting in October 2018. As of yet HUD has not confirmed if or how they will change the program IF losses persist into the endorsement cohort of fiscal 2018. In slightly less than 150 days both the MMIF Annual Report and Actuarial Report on the HECM portfolio for the MMIF should be released for fiscal year 2018. HUD should have a good handle on the situation by mid to late August 2018 or about 60 days from now.

  • Not surprising with the drops. A bottom is not in sight yet. A hecm streamline is what the industry needs but no one is listening. Not only would a hecm streamline generate revenue for the MMI Fund to reduce losses, but will also put prior hecm’s in much better position by reducing the accrual rate, which will reduce claims claims when the principal limit reaches 98% of the max claim. You should also mitigate PL appreciation by removing the line of credit growth. The line of credit growth is good for the borrower, but not so good for HUD.

    • ravens9111,

      If you can tell us how none of the following will be hurt through the process, you might have a positive response but so far you refuse to look at the details:

      1. Lenders,
      2. Borrowers,
      3. Investors, or
      4. The MMIF.

      Why is the assignment claim a loss to the MMIF? Yes, HUD will have to use US Treasury funds at the intra-governmental rate to buy the HECM note but that rate should be offset by the interest rate accruing on the HECM. So the claim is a temporary claim since HUD will be compensated to some extent when the loan terminates. I repeat the assignment claim may not be close to the actual loss at termination (at some time in the future), if any.

      I still have no idea what you mean when you write: “The line of credit growth is good for the borrower, but not so good for HUD.” The HECMs in the MMIF are not protected by HUD but rather the MMIF is protected by the US Treasury.

      You are convinced you understand this stuff. I just don’t see that.

      • Lenders are not investors. Lenders fund the loan, package them into HMBS and sells them to investor for a price. What they receive from investor minus their cost is called profit. Lenders need to make money to stay in business. When costs are high but revenue is down, lenders make less profit or incur losses, which is what has happened to many lenders who have exited the business.

        If you have talked to enough borrowers over your career, the biggest gripe you hear is the monthly deferred interest plus MIP. Reducing the accrual rate for borrowers not only preserves their equity, but gives borrowers incentive to streamline their HECM to a lower accrual rate.

        Investor buy HMBS to park money and earn ROI. Investors are important stakeholders in the hecm program but you can’t sacrifoce the longevity of the program for investors. A streamline would be no different for investors than a H2H. Investors get paid back their money. They can either repurchase HMBS or put their money elsewhere. My bet is they buy more HMBS, just as investors buy FHA and VA loans where borrowers can streamline or do an IRRRL. You create a separate pool for a HECM streamline.

        When the HECM is assigned to HUD, they are losing money hand over fist. Yes, the interest is still accruing on the loan, but you are also assuming the value is higher than the principal limit and the prior max claim amount. This is likely not the case. There is likely a very very small percentage of HECM’s serviced by NOVAD where when the loan becomes due and payable that HUD can make a profit. They are losing BILLIONS of dollars. The bleeding needs to stop.

        I think you have it backwards. The Treasury backstops HUD.

      • ravens9111,

        I am sorry for troubling you with my views. You seem frustrated that no one sees your point of view. Surely lenders will take up your cause if you are right. So with that I will move on to your next reply.

      • Carmine, I think you also know to reduce losses or even be in the green, HUD needs to collect more revenue. That’s what a HECM streamline will do. You can generate billions in up front MIP each year. You charge a 2.5% UFMIP on an average max claim of $250k. Expected volume of 20,000 per month. That generates $1.5 billion in additional revenue plus you get the reduced accural rate and cease the line of credit growth. That puts risky HECM’s in a much less precarious position. You need to target the HECM’s that are the highest risk of loss. This HECM streamline would do just that.

        You can make this happen without an appraisal and no FA! Whatever they have or don’t have as far as payments, LOC, or LESA would transfer over. The point of a streamline is that HUD already insures the loan. Do nothing and they will continue to lose billions. Try something different and generate $1.5 billion and reduce claims? It’s really a no brainer.

      • ravens9111,

        You provide that data to HUD and I am sure you believe HUD will be convinced. We do not agree as to how things would work out under your plan and further discussion seems futile.

        Let us both move on and help what seniors we can.

      • And once you’ve driven off all of the investors, what then? You become Financial Freedom 2.0? Or do you think origination fees alone can sustain a business in this industry?

  • Why the old news? Endorsements were up a hair in May from 3,345 in April to 3,459. We’ll know June endorsements in nine days. HUD publishes their F17FVCQ report on the first of each month.

    • wshart,

      You are correct as to total endorsements.

      The information provided in this particular RMI monthly report is information gathered from the HUD Snapshot Report which is normally posted about the same time as the FHA monthly Production Report which is about 45 to 75 days after the month end for the data being reported.

      The Monthly Endorsement Report is posted no later than the day after the month closes for the endorsements being reported. BUT it only reports endorsements by Approved Mortgagee.

      The Snapshot report gives data by not only Approved Mortgagee but provides limited information on each and every HECM endorsed for the month being reported including any originating TPO.

      Why both RMI and RMD focus so much on the total endorsements in the more detailed RMI report is unknown. It seems redundant but RMI seems to feel it must be restated. Why RMD feels the same is very odd.

  • A better response? Maybe part of the problem in the reverse industry is lack openness to new ideas instead of using the same stale ideas that have failed for a decade? Maybe a fresh new perspective on new ways to make the program more sustainable is a good thing. What solutions have you come up? Just because you don’t understand what a streamline is or how it works doesn’t mean it’s not a good idea.

  • 1) The investor market is small and this is not a mature market. It’s still in it’s infancy (only about 10 years old). When you unexpectedly drop the margin and ongoing MI on a large number of loans, the speed at which they get bought out at 98% of max claim gets delayed by years. There is a lot of uncertainty around the product already (PLF changes, cashout refi prepays, volume swings, program changes) that I would think the investor market has a limit to how many unknowns they’ll tolerate. Just my personal opinion that has been backed up by anecdotal evidence from others.

    2) VA & FHA loans have relatively known prepay speeds that occur in declining rate markets of significance (and ongoing MIP changes). There’s a limit to how frequently that happens and what rate decrease will cause someone to act. Our market is a lot less stable than that.

    3) How do you get NRMLA & the board to go along with a streamline refinance with significant closing costs on the new loan? If you are talking about a new 2.5% upfront MIP with no credit for previously paid upfront MIP, then that’s a rather large fee. I can promise you that prospective clients will not pay six figures in closing costs to drop their margin. They’d have to keep the loan for a long time to make up those costs.

  • ravens9111,

    You win.

    If you want support you have an odd way of going about it. I ask how Streamline would work with HECMs and you show fangs.

    I don’t need this. If you want change talk to those who can facilitate it.

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