As the reverse mortgage industry prepares to begin the new year in earnest, the cumulation of changes to the Home Equity Conversion Mortgage (HECM) product and evolving situations for prospective borrowers will have to be addressed in 2019. To that end, RMD has been seeking insight from reverse mortgage professionals and thought leaders in order to gauge how they view the potential for business in the new year.
For a comprehensive outlook on 2019, RMD reached out to John K. Lunde, president of Reverse Market Insight, Inc. to ask a series of questions about how he sees the forthcoming year shaping up for the reverse mortgage industry, including what he perceives as the primary challenges for the industry to overcome along with opportunities that should be seized.
Reverse Mortgage Daily: How has generally lower monthly volume affected the health of the reverse mortgage industry?
John Lunde: It means less revenue for the industry at company, loan officer and other employee levels. That has led to companies downsizing, consolidation and individual belt-tightening and exits from the space. It’s also accelerated a move toward reverse being a product that companies and individuals offer rather than [being] their whole business specialty.
RMD: What do you see as the potentially biggest operating challenge for the industry to overcome in 2019?
JL: Low volume will continue to be a challenge along with lower loan margins from generally higher interest rates and more competitive pressure around interest rates/margins.
RMD: Have you been able to identify some of the market’s biggest opportunities in the new year? If so, what are they, and why do they look promising to you?
JL: I believe it’s really about getting back to basics in many ways. Distribution and relationships were critically important in the original market growth period particularly from 2000-2008, and they will be even more important now with the lower revenue per loan largely eliminating the financial incentive for single product and direct response style marketing.
RMD: How do you see the increasing prevalence of proprietary/jumbo loans impacting the industry in 2019?
JL: It is a good thing in making the industry more insulated from FHA product changes and responsive to borrower use cases, but increases risk of volatility in product offerings in the next downturn in home prices and/or financial market risk appetites.
RMD: In your mind, what constituted the biggest hurdle for the industry to jump in 2018? Do you think it was cleared, or will it continue to affect the reverse mortgage landscape into the new year?
JL: Re-organizing the business around dramatically lower revenues on both an absolute level and per loan. I think we’re still in the process of clearing that hurdle, but most lenders are well into their adjustment.
RMD: Stemming from the principal limit factor (PLF) changes instituted in 2017, where do you think an upturn will begin as we head into 2019?
JL: I think the biggest upturn has already been seen in proprietary loans. As to where HECM volumes turn upward, I’d expect that to be a much slower and more gradual recovery alongside faster growing proprietary volumes for the immediate future. If proprietary grows even faster than expected then it could take share from HECM and prevent visible recovery in HECM volumes indefinitely.