How the West Was Won: Reverse Mortgages’ Left Coast Dominance

Month after month of data show Western states — particularly Colorado and Washington state — as hotbeds for reverse mortgage activity, and local originators say multiple factors make these locations ripe for volume.

Much of this reverse mortgage activity is in the Seattle and Denver metropolitan areas, where property values are exploding and helping drive reverse mortgage volume, originators said.

Lynn Wertzler, president of Greenleaf Financial in Portland, Ore., called the Seattle area an “ideal market,” with high property values and record appreciation.


“I’m sure it has attracted much attention from national lenders so, undoubtedly, very substantial advertising and marketing dollars have been targeting this area,” said Wertzler, who is licensed in Washington. “According to one source, the average residential property value in Seattle is now $767,000 after aggregate appreciation in the last six years of about 85%, which is in the top three nationally.”

RMD frequently reports on data from sources such as CoreLogic — which tracks both home prices and equity levels — and Reverse Market Insight, which have shown distinct growth in Western states over the last few years.

Earlier this month, Washington came in second place in CoreLogic’s list of per-homeowner equity gains over the last year with $44,000; King County, home of Seattle, saw Home Equity Conversion Mortgage endorsement growth of 41.6% between the first quarters of 2017 and 2018, despite overall negative trends for the industry.

Meanwhile, in Denver, strong reverse mortgage uptake rates have been blamed for a persistent housing shortage that has increased competition among homebuyers and, in turn, driven prices higher.

Christine Jensen, branch manager at Fairway Independent Mortgage in Arvada, Colo., said ideal demographics contribute to the success of loans in her state.

“We have a rapidly aging population and people here like to age in place,” she said. “They have no intention of leaving, even if they have a second home. Once you get here, you stay here.”

Colorado HECM professionals have also enjoyed a warm reception from the overall community, Jensen said. By hosting workshops and forging partnerships with chambers of commerce and local district attorneys, reverse mortgage professionals have been able to further community outreach.

“We’ve got a really great team around the state, but even colleagues in competing companies  — we try to elevate the level of professionalism that is in the industry,” Jensen said.

Ellen Skaggs, reverse mortgage national sales manager for New American Funding in Tustin, Calif., makes her way to the Pacific Northwest often. In the Seattle area, she recently closed two loans and has two more in the origination phase — along with five proposals. In addition to strong property values, the Seattle area is loaded with senior amenities, making it a “goldmine” for reverse mortgage activity, she said.

“Washington has no state tax on your income, and if you cross right over the bridge, Oregon has no sales tax,” she said. “Retirees are moving to these areas.”

She also credits numerous hospitals, nearby airports, an emphasis on healthy lifestyle, and plenty of social gatherings as draws for seniors.

“I think it’s a more of a relaxed environment, if you’re not right in the middle of Seattle,” she said.

Thanks to the growing equity for homeowners, Bruce Simmons, reverse mortgage manager at American Liberty Mortgage, Inc. in Denver, said he does not foresee the reverse mortgage volume decreasing anytime soon.

“I think the reverse mortgage market is stable right now,” he said. “I am sure we would have been growing had [HUD] not changed the rules on us last year, but it is what it is now.”

Written by Maggie Callahan

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  • Ms. Callahan,

    Endorsement volume in the industry is very, very misunderstood. For example, you write: “… between the first quarters of 2017 and 2018, despite overall negative trends for the industry.” Even though that is the conventional wisdom in the industry, facts speak otherwise.

    The national endorsement count for the first quarter of 2017 was 14,454 but for the first quarter of 2018, the count was HIGHER at 15,793. Or look at the trailing 12 months ended 3/31/2017 with 50,154 endorsements BUT for the trailing 12 months ended 3/31/2018, the endorsement total was substantially HIGHER at 58,325. So where is this negative trend when it comes to endorsements for the first quarter of 2017 versus the first quarter of 2018? Not what is expected.

    What most people do not understand is that the demand of about 120 days ago is reflected in endorsements. More current demand is reflected in case number assignments. Case number assignments for the first quarter of 2017 totaled 19,542 but those for the first quarter of 2018 were substantially lower at just 12,711. For the trailing 12 months ended 3/31/2017 case number assignments were 80,854 but for the trailing 12 months ended 3/31/2018 total case number assignments were HIGHER at 80,990. So among the four sets of variables looked at, the ONLY set of variables that show a loss was the case number assignments for the first quarters of 2017 and 2018. So by March 31, 2018, no clear patter had developed for the current fiscal or calendar year.

    What might be surprising to many is that fiscal 2018 may end with the current pattern of secular stagnation intact. The ending amount could be between 46,700 and 51,300. If total endorsements for the three months ended September 30, 2018 exceed 9,490, the current pattern of peak to valley secular stagnation will no longer be downward sloping. If that total is greater than 15,854, the peak to valley trend will also end; however, the total case number assignments for March, April, and May 2018 is only 13,529 so exceeding 15,854 endorsements during the next three months is extremely doubtful. Just to get to 9,490 endorsements for the three months ended September 30, 2018 will require a higher conversion rate of 70.11% which is significantly higher than currently anticipated for that three month period.

    Based solely on the current trend of secular stagnation, fiscal 2018 should be a valley with total endorsements a few thousand endorsements lower than the last valley of fiscal 2016 (downward sloping). Yet endorsements for this fiscal year should end stronger than the current pattern of secular stagnation indicates but most likely not enough to even end any one of the three descriptors for the current trend. The endorsement count for calendar year 2018 should be materially lower than the endorsement count for fiscal year 2018.

    How well fiscal 2019 fares is strongly dependent on whether we see changes that will materially impact the endorsement counts for next year. If no FHA changes are made at the end of this fiscal year to PLFs, one should expect the end of secular stagnation due to the return of substantial loss. Again without FHA changes, the first few years of the next decade could see a return of stagnation but most likely upward sloping stagnation but not necessarily peak to valley.

    Odds are based on initial comments from Commissioner Montgomery, the chance for change that negatively impacts HECM demand seems lower than before he took office. Unless change is made that improves demand, one can expect fiscal year and calendar year 2019 to end with lower total endorsements than total endorsements for fiscal 2018. Let us hope for something better than the endorsement projections contained in this comment. Even though conservative, my projections are historically too optimistic with the exception of fiscal 2018 where it now looks like my projection will end up being about 4 to 5% too low.

    • Jim, you seem to ignore the many, many thousands of case numbers that were assigned in September 2017 and that never turned into endorsed loans. This was the rush to beat the lower principal limit factors going into effect on October 2, 2017. This distorts all of the monthly and quarterly statistics you are using for predictions. Simply put, before September 2017, case numbers averaged 7,017 per month (10/16 thru 8/17). Now they average 4,077 (11/17 thru 5/18). The industry is in a ‘new era’, and it may not be a happy one. Some good news is that in May 2018, case numbers were up 6.2% from the average of the prior three months (2/18 thru 4/18).

      • wshart,

        In order to see why we fully disagree, please see my response showing the date of 7/18/2018 and time of 6PM PDT.

  • I think what has been said in this article supports much of what I have been saying. We as an industry have to work harder and smarter.

    We must do a lot more research than ever before, we need to use proper demographic to target the higher valued property areas and seek out senior homeowners with little to no debt on their property.

    Work with the professional sector that deals with seniors that are more affluent. This will defenitley help stable origination’s!

    John A. Smaldone

    • John,

      It seems we read different articles. The one I read talked about two regions of the country that are called hotbeds for HECM endorsements.

      Immediately it says why. “Much of this reverse mortgage activity is in the Seattle and Denver metropolitan areas, where property values are exploding and helping drive reverse mortgage volume, originators said.”

      The rest of the article states what is causing this explosion in home values.

      You talk about working smarter and harder. You talk about doing more research. Then you talk about working with the professional advisers to the affluent. Absolutely none of that is discussed in this article.

      In fact seeing these two regions in the glowing terms of increasing HECM originations only proves the rule that the ingredients needed to grow out originations in most of the country is missing. Some have found rich veins of demand despite their lack of “ingredients.” These exceptions only prove the rule.

      We are headed into fiscal 2019 with not much hope for higher endorsements than in this fiscal year. Yet this fiscal year should prove to have the least downward slope in endorsements since this period of downward sloping peak to valley secular stagnation started in fiscal 2013. The general downward slope still has the potential momentum to end on September 30, 2018 (even though this prospect seems to have less of a chance of occurring than before HUD posted the case number assignment results for May 2018, late last week).

      The problem of fiscal 2019 looking lower as to endorsements is that fiscal 2018 is a valley year, while fiscal 2019 should be a peak year in our current pattern of secular stagnation.

  • wshart,

    Don’t be so overwhelmed by the fallout number of case number assignments for September 2018 that you lose sight of the fact that the MACR (Modified, Adjusted Conversion Rate) for the endorsement

  • wshart (7/18/2018 — 6PM PDT),

    You say that:

    1) I ignore the CNAs (case number assignments) assigned during September 2017 which did not get endorsed and because of what I ignored “all of the monthly and quarterly statistics” I am “using for predictions” are distorted.

    2) “Simply put, before September 2017, case numbers averaged 7,017 per month” and “now they average 4,077 (11/17 thru 5/18).”

    3) Some good news is that in May 2018, case numbers were up 6.2% from the average of the prior three months (2/18 thru 4/18).

    As to your first contention, you ignore not only the amount of CNAs that were assigned during September 2017 and eventually got endorsed but even worse you ignore the applicable MACR (modified, adjusted conversion rate). The MACR for the HECMs endorsed from May 1, 2017 to April 39, 2018 (the second 12 consecutive month period) was 63.7355% and for the period of May 1, 2016 to April 30, 2017 (the first 12 consecutive month period), that rate was 64.4880%. They are virtually the same, meaning that the rate of the number of CNAs assigned during September 2017 which got endorsed was about the same as the average for that year and the year before that. There is NO truth to the myth that the rate of CNAs assigned during September 2018 was substantially lower than CNAs assigned in other months.

    The pull forward effect of Mortgagee Letter 2017-12 which produced the largest Case Number Assignments for any month in the history of the industry at over 20,400 CNAs was that such a work overload at the lenders and HUD that the normal lag time of 4 months for the average endorsed HECM to go from CNA to endorsement got extended to about six months. That is why the second 12 consecutive month period I reference ends on April 30, 2018, seven months after September 2017. So by comparing the MACR for that 12 month period to the MACR of the 12 month period that immediately precedes it, we see the issue is one of delay NOT a substantial percentage of CNAs not getting endorsed.

    How I forecast 46,700 to 51,300 endorsements for fiscal 2018 is simple. Using

    1) total CNAs for March, April, and May of 2018 of 13,529;
    2) the MACR for April 2018 of 64.4880%;
    3) the total endorsements through 6/30/2018 of 39,377; and
    4) the four month lag rule of thumb for the period it takes the average endorsed HECM to go from CNA to endorsement;

    the forecast is about 48,100 endorsements for fiscal 2018.
    Using the magic of UCLA upper division stat theory and CPA conservatism, a range develops of between 46,700 and 51,300 endorsements, inclusively, for the fiscal year 2018.

    On a very preliminary basis, the endorsements for fiscal 2019 come in at a range of 42,000 to 44,000. That is based on a future value of 27,714 CNAs with a starting “payment” of 3,575 CNAs (November 2017) and extending that to 19 months minus the 27,714 CNAs which is 65,464 multiplied by an expected MACR for fiscal 2019 and then estimated using the same stat and conservativism principles previously referenced. The fiscal 2019 total endorsements are very, very rough and will be subject to change even if FHA makes no changes to the HECM structure for next fiscal year.

    To fill in some missing information the MACR is the number of endorsements for a 12 consecutive month period divided by the 12 consecutive month period of CNAs that ends four months before the end of the 12 consecutive period for endorsements. So in the example above, the numerator of the MACR for the HECMs was the HECMs endorsed in the 12 consecutive month period ended April 30. 2018 of 56,634 while the denominator was the total CNAs assigned during calendar 2017 of 87,821 CNAs producing a MACR of 64.4880%. The endorsements for the 12 months ended 4/30/2017 were 50,917 while the CNAs for the calendar year 2016 were 79,888 for a MACR of 63.7355%.

    Why 12 months is used in the MACR computation is so that the effects of seasonality are mitigated. Again the reason why the CNAs are also for a 12 consecutive period but one that ends four months earlier is to recognize the impact of the four month lag rule of thumb on the MACR computation.

    Now using actual computations and data citations please explain how my forecast for fiscal 2018 endorsements and projection for fiscal 2019 relied on distorted data. It seems your claims were based on industry anecdotes and myths rather than any recognized type of review process. Or better yet give us your forecast and projection telling us the data you are relying on and fully disclosing everything used in making your computations including all significant assumptions.

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