HUD Reverse Mortgage Changes Hit Originators Hard, Volume Falls

Concurring with recent data showing the reverse mortgage industry’s decline in volume following substantial program changes implemented in October 2017, many individual originators claim their volume has decreased between 10% and 50%.

Exact volume losses vary widely by lender, but most agree the cut runs deep and industry data reflects a more-than 20% decline in volume according to recent data analysis.

In talking with fellow industry members, Lynn Wertzler, president of Greenleaf Financial in Portland, Ore., said he thinks that the volume decreases for individual brokers are pretty significant.

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“My general sense is that the decline has reached 25% to 50% or more, but that is based on anecdotal information, not hard data,” said Wertzler, a certified reverse mortgage professional.

For Tim Linger, CRMP and owner of HECM Senior Home Financing in Orlando, Fla., his volume has decreased by about 50%. As his numbers started dropping, he added forward mortgages to his product offerings.

Beth Paterson, CRMP and executive vice president at Reverse Mortgages SIDAC in St. Paul, Minn. said she doesn’t have an exact percentage for her loss of volume, but she knows it has dropped significantly since the principal limit changes last October.

“It’s low,” said Paterson. “The calls we get unfortunately just don’t qualify.”

Although she said January to February is generally a slow time, Ellen Skaggs, a CRMP and the reverse national sales manager with New American Funding in Tustin, Calif., said that her company is bringing in less than the same period last year.

“My company is only down about 10% in comparison to this time last year,” said Skaggs, who has four reverse loan originators working on her team. At the beginning of the year, she also added a call center team with two sales reps.

Skaggs acknowledged that her numbers could be bleaker but said that taking a more positive position when presenting the reverse option has helped.

“For the product to be successful, people need to stop apologizing for the cuts and start embracing it,” she said. “They have to sell to it, because it is what it is. We are selling the best thing we can have, and it was for the stability of the program.”

Shifting to more fixed-rate loans, and focusing on Home Equity Conversion Mortgages for purchase have also helped her numbers, Skaggs said.

Harlan Accola, a CRMP and national director for reverse mortgages at Fairway Independent Mortgage in Madison, Wis., said that his team’s volume is actually up 36.2% year to date. Fairway currently has fewer than ten full-time reverse originators.

“It really comes down to the Fairway relationship with financial advisors, real estate agents, and forward loan officers,” he said.

While volume is down for most, originators like Paterson and Skaggs agree they have primed currently unqualified borrowers for a reverse mortgage in the future.

“I can tell people how they can get in better shape to be ready to do a reverse mortgage in a year or two,” Skaggs said.

Written by Maggie Callahan

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  • While the article is on endorsement losses, it is surprising it does not present the June 2018 endorsements summary report which HUD posted 4 days ago. The June 2018 endorsement summary report shows a drop of 521 endorsements from the May 2018 count to just 2,838 for June 2018. The May 2018 endorsement count was 3,359.

    The drop in endorsements for June 2018 was 15.5%. The May 2018 count was just 14 endorsements higher than April 2018 whose count was 3,345 endorsements. Yet in a RMD article posted less a month ago (on June 6, 2016), the following claim was made by RMI (Reverse Market Insight): “‘This is the biggest sign yet that HECM volume may have bottomed following the substantial program changes that took effect Oct. 2, 2017’…”

    Yet there was no CNA or conversion rate evidence offered to support this lofty conclusion. April 2018 was the fourth month of endorsement losses of 880 endorsements or more. One month going up 14 endorsements (May 2018) over the prior month is no evidence of any nadir following the 10/2/2017 changes. CNA and conversion rate information clearly told us otherwise.

    Too many related to this industry stake their predictions more on optimism than facts. In November 2013 we were reading how the endorsements were going to be above 100,000 and most likely 300,000 for the fiscal year 2018. What nonsense even for four plus years ago.

    Several years ago, an industry leader requested that our conclusions be based in facts rather than making claims based solely in hyperbole. The same request should be made of those who attempt to speculate or even estimate HECM endorsements. Many have relied on these conjectures for business planning purposes only to see their optimism crushed by facts.

    Another odd thing about this article was reading how a lender’s reverse mortgage EVP could not reasonably estimate the percentage of increase/decrease in closed HECMs from last year to this.

  • Some weeks ago, I commented that the October 2017 changes to the HECM loan would render it “unworkable”. And, notwithstanding the numerous responses I received advising me that I did not know what I was talking about, the handwriting on the wall is now becoming a reality. AAG and RMF have moved into the forward mortgage business and HECM loan officers are leaving in droves. It will be interesting to see how low the numbers must fall in order for the remaining KOOL-AID crowd to face the truth.

  • Every HECM originator and lender should be supportive of a HECM Streamline Program, just as HUD has on the forward side. There would be an explosion in the industry. HUD should be in support of such a program as well. Investors will still buy these in a separate pool. Instead of the industry being reactive to HUD changes, there should be more proactive ideas from within the industry, which does not appear to be the case. When the industry doesn’t come up
    With ideas, HUD will step in and do it on their own. An industry with no voice will be subjected to further change if nothing is done to stop the bleeding from further losses.

    • ravens9111,

      As we have corresponded and spoken on the phone, I stand firmly against this idea.

      The balance due on FHA insured forward mortgages are getting smaller over time. When premiums are paid on these loans by the Ginnie Mae investment community, the premiums are returned in the early years of the forward mortgage when interest charges are generally the largest.

      With the HECM, the balance due generally grows over time so that much of the premium paid by investors is returned over the later years of the life of a HECM. Your suggestion will end interest earnings for investors who first acquired the HECMs that are streamlined.

      If you can find a way to reimburse the lenders for any lost premiums without taking it from MIP or Congressional appropriations, I will listen, otherwise, your proposal could end the trust that the industry and Ginnie Mae have tried to engender with the investment community in determining the premiums they pay.

      So while I continue to stand against your concept as I told you on the phone, that does not mean it does not have merit or that someone else might figure out how to satisfy the Ginnie Mae investment community.

      No new ideas will only further downward sloping secular stagnation or perhaps make things worse. On that we agree.

    • You talk about a streamline program in nearly every post, but you haven’t presented a viable solution for all parties. Or is there a proposal floating around that details exactly how this would work?

      Based on your previous comments, this would be good for HUD (obviously) and the borrower (you said $0 closing costs). Please explain how this would work for lenders and investors? Write a 1.5% margin loan at 100% UPB utilization and cover all closing costs?

  • The contents of the article does not surprise me. The impact of October 2nd, 2017 was obviously a blow to the industry. I feel the hang over from it is now becoming a little to much, it is what it is, it is done and over with, we must move on!

    However, Ellen Skaggs made a very good point when she said:

    “For the product to be successful, people need to stop apologizing for the cuts and start embracing it,” they have to sell to it, because it is what it is. We are selling the best thing we can have, and it was for the stability of the program.”

    She hit it on the head! Start embracing it, move on, look for new opportunities, go after the professional sector, search for those senior homeowners with little to no debt, go after the higher valued properties! In short, do a lot of home work and research! Start approaching the market differently. We are in a new millennium for God sake’s!

    Look at what we have out there, I know I am being redundant but we have more senior homeowners turning 62 years of age than ever before! We have more equity in the hands of qualified senior homeowners than ever before, what more can you ask for?

    I guess we can all ask for the courage Ellen Skaggs has, get out there and make it happen or as cruel as it may sound, If you can’t embrace the change and what has taken place, get out of the business and find a different profession!

    Look at what Harlan Accola, National Director for reverse mortgages at Fairway Independent Mortgage said, he said that his team’s volume is actually up 36.2% year to date. He went on to say that Fairway currently has fewer than ten full-time reverse originators.

    Harlan also said, “It really comes down to the Fairway relationship with financial advisors, real estate agents, and forward loan officers”! In short, Harlan and his team went after new markets, the professional sector.

    To end my comment, I can only say that we are not a dying industry, we have more opportunities available to us, giving all of us the tools to turn things around in our industry, more than ever before! Just take a different positive attitude and make it happen my friends, we are all in this together!

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

    • John, here is what you wrote 6 months ago in a comment to a January 4, 2018 RMD article:

      “Granted, the 2,750 applications (case numbers) that were issued in October will defenitley impact endorsements in January and February.

      However, we need to look toward March and there after. If the industry can bounce back, get over the October 2nd woes and take advantage of what opportunities are out there, we can turn the year 2018 into a good one!”

      Your current comment is a little more expanded but your view does not seem to change despite the circumstances six months later.

      • George,

        I appreciate that you have been reading my comments!

        However, what is your point? It is fact, we now have more equity in the hands of senior homeowners today than ever before!

        I am sorry my friend, I don’t see what your point is on comparing what I said 6 months ago to the present day? Help me out on this one!

        Remember, what many of us comment on are opinions of what we may feel will happen in the future based on what we see and have facts on at that time!

        Thanks George,

        John

      • John,

        What is the relationship between 10,000 baby boomers turning 62 each day and the current trend in HECM endorsements? At best it is NOTHING. That has been so for almost a decade now. But for three years, it was negative in that same decade.

        What is the relationship between seniors experiencing greater home equity and the current trend in HECM endorsements? Again it is at best NOTHING in the last eight years. Yet again for three years, it was negative in the last eight years.

        So why is it you that you find comfort in baby boomers turning 62 and senior home equity growing? The only rational answer seems to be that inevitably the miserable shape of senior retirement plans and the sheer growth of the population over 62 with sufficient home equity will be so great so as to cause reset of senior demand for reverse mortgages.

        While I can see that view, WHEN will that turn occur? Throughout early fiscal 2010, many originators thought that we would see a fiscal year with 200,000 endorsements rather rapidly. By 2012, the feeling was where will the bottom come. For the last six fiscal years including 2018, we have been in secular stagnation.

        The pressure for growth became so heavy that in 2013, we saw a call repeated over and over that 300,000 endorsements was a reasonable goal for fiscal 2018. So a plan was put in place to get that done but it was so poor its failure is still something that has not been property analyzed, developed, or even thoroughly discussed. Because of this PLAN, some silly notions about collaboration overtaking the industry were set in motion.

        Since the end of fiscal 2009, we have been told on several occasions that there was nothing that could hold the industry back from 120,000 endorsements that particular fiscal year. Guess what? It never happened.

        Will things turn around? Most likely, but not like we would want. When will that turn around start? It could be as late as the start of fiscal 2021. On 6/6/2018, RMI said it started on 5/1/2018. HUD reported June 2018 endorsements and the total of less than 2,840 endorsements coldly made it clear that nothing had started on 5/1/2018.

        Perhaps you have information that will cheer our hearts. As you say in your first comment you told us how you feel about the future “based on … facts” at that time. Please share those facts.

  • The problem with this information above is what is being measured and what is it being measured to? Is it the prior 12 months? Is it June 2018 volume?

    Then what is being compared? It probably is not endorsements. It most likely is applications which is the probably the worst measuring units of all. In using applications, the conversion rate to closing is horrible. Is it closing?

    A lot people are probably like Beth above. They simply do not know, other than by guessing.

  • It is great to read the diverse opinions of so many different groups. However, both Lynn and Beth are from the same very small HECM broker, Greenleaf Financial.

    Looking at the surface, this does not seem to be devious or anything close to that. It appears to be a misunderstanding by the author that Reverse Mortgage SIDAC (a dba of Greenleaf Financial) is not part of Greenleaf Financial.

    Perhaps Beth is closer to HECM operations than Lynn or vice versa but it would seem that all RMD needs to interview is one or the other not both. There are lot larger HECM originating brokers that are actually in the HECM 100 Originators who could provide a broader point of view especially since Greenleaf cannot do business in CA, NY, NJ, TX, FL, GA, OH, or 40 other states. They are licensed to do business in just three states: OR, WA, and MN.

  • I’ll just focus on the lender side of the equation, as I think you are missing how this would shake out. Let’s say the average UPB of those looking to streamline is $200K and they are at 80-90% PL utilization. You are dropping them all to a 2.00% margin.

    Let’s say that pays 700 basis points minus a 200 basis point hit for it being a streamline refinance (there’s no question the premiums would be lower on streamlines or all HECMs if you allowed these loans). That’s $10K in gross revenue before paying any of the borrower’s closing costs. Those could be as low as $2.5K in CA up to $8K in FL. Let’s split the difference and say the average closing costs, outside of the upfront MIP, are $5K. That’s $5K in net revenue per loan.

    How much net revenue per loan do you think it takes a lender to be profitable? I would suggest it’s upwards of $10k to be “profitable”, however you define that. If your counter-argument is that you don’t drop everyone to 2% or below on the margin, then how many folks do you think will close a streamline refi?

    This doesn’t even get into the myriad of other problems that you would face.

  • ravens9111,

    As I illustrated to you today through LinkedIn with a 12% premium of $2.7 million on an acquisition of a $22.5 million interest in a HMBS (for a total investment of $25.2 million) and an effective average interest rate of 4.45%, the total amount paid to the investor would be $3.2 million for a $0.5 net cash inflow in year 3. That works out to a 1.1% annual interest rate compounded monthly.

    If on the other hand, the investor paid $25.2 million for a piece of a HMBS and only received $25.2 million 3 years later, that is a zero return to the investor on his investment of $25.2 million. What investor in his right mind would ever enter into the same type of investment again? I believe that faithfully speaks to your 3 year idea above.

    Like I have said if I was the CPA adviser to the client I would tell that client not to make that mistake again. The investor would not even have a return to cover inflation over 3 years.

    You have to learn something about the investor position other than repeating the same thing over and over. I am less than enthusiastic about dealing with this subject again without very strong illustrations proving your points. I told you I have no interest in moving the return to 8 years rather than 3. If you want support, it is up to you to prove your points.

    • Hi James,

      What are your thoughts regarding the secondary market yield for the Jumbo’s. As you may know the Home Safe program offers interest rates of 5.99%, 6.5% and 7.0%, yet FAR and AAG only offer 250 bps of compensation. I would think that these loans receive a much much higher Yield Spread on the Secondary Market. Thoughts?

      • Mr. Mickley,

        I have no part in secondary market operations. I do understand much of the computations since it involves simple premium, discount, discounted cash flow, and future cash flow values. How investors choose the specific rates they do is not something I have any expertise in.

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