HECM Endorsements Settle into ‘Default Setting’ in June

Home Equity Conversion Mortgage (HECM) endorsements dropped slightly by 5.6 percent to 2,546 loans for the month of June 2019, which indicates that the endorsement levels have started to settle into a more recognizable field of relative normality. This is according to the June HECM Lenders report compiled by Reverse Market Insight (RMI).

“[This recorded drop is] lending further support to the idea that 2,500 endorsements per month is the default volume setting for the industry right now,” said RMI President John Lunde in introducing the June data. “Some regions looked better than others.”

This monthly endorsement figure coincides with the figure Lunde offered last month as a potential “floor” for regular reverse mortgage endorsements.

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“I’d say this is regular endorsement volatility month-to-month in the context of current trend of around 2,500/month,” Lunde said of the May data, which stood at 2,697 loans for that month. “April was high and [May’s data] is still above the average from several months previous.”

Regional data highlights for the month of June saw the New England region jump 23.9 percent to 109 loans. The Northwest/Alaska region grew 16.5 percent to 212 loans, which is interesting considering that specific areas like Seattle, Wash. and Portland, Ore. are down over 40 percent when compared with each city’s recorded 2018 figures, Lunde says. The Pacific/Hawaii region also increased 7.2 percent to 791 loans.

Although endorsements were down, three of the top 10 lenders recorded notable increases in endorsement activity. HighTechLending saw a 68.6 percent spike for a total of 59 loans; Fairway Independent Mortgage Corporation rose 40 percent to 98 loans; and Finance of America Reverse grew 21.6 percent to 214 loans.

Read the full HECM Lenders report for June at RMI for specific breakdowns and detailed regional performance data.

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  • The claims in the article are interesting. One, in particular, is odd. It is not clear that the default rate for HECM endorsements is now 2,500 and here is why.

    The HECM case number assignments which are most likely to be converted into HECM endorsements over the next three months are most likely to come from applications that received HECM case numbers assignments (HCNAs) during the three months ended May 31, 2019. That total was 13,108 HCNAs.

    Last fiscal year the HCNAs produced in the three-month period ended May 31, 2018 totaled 13,523. The HECMs endorsed during the third calendar quarter of 2018 totaled 8,985. That is a conversion rate of 66.4%. The modified annualized conversion rate for fiscal 2018 was just 63.8%.

    It is estimated that the conversion rate for the third calendar quarter of 2019 could be as high as 67.5%. Knowing that the total HECMs endorsed for the first three quarters of fiscal 2019 was 23,759, the total for HECMs endorsed in fiscal 2019 is estimated at 32,600 for a total of 8,841 HECMs estimated as endorsed in the last quarter of this fiscal year. That would be a conversion rate for that quarter of 67.45%.

    Some are running with the default rate of 2,500 HECM endorsements per month. They are predicting a total of only 31,000 endorsements for the this fiscal year which will be ending in less than 82 days. While 1,600 HECM endorsements may not seem like much, it is still 5.16% of 31,000.

    Three conclusions jump out from the 32,600 HECMs expected to be endorsed this fiscal year. First, this total is the lowest seen since fiscal year 2003, 16 years ago. Second, the percentage loss in endorsements for this fiscal year when compared to fiscal 2018 is 32.6%. That is THE worst percentage loss in comparing endorsements of one fiscal year to those of the fiscal year immediately preceding it. The biggest percentage loss before fiscal 2019 was fiscal 2010 at 31%. So as to the third and final conclusion addressed in this comment, fiscal year total HECM endorsements will not reach 40,000 HECM endorsements again until sometime in the next decade (that is after fiscal 2020).

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