RMD Report: Low Rates, Private Products Boost 2019, Say Industry Leaders

The reverse mortgage market, comprising both traditional Home Equity Conversion Mortgages (HECMs) and proprietary loans, has been through a turbulent year in 2019. While year-over-year volume has shown a decline in the number of HECM originations when comparing the fiscal year data of 2018 and 2019, a number of other more positive developments have occurred.

These include a sizable performance improvement of the HECM book of business inside the Mutual Mortgage Insurance Fund (MMIF), favorable interest rates driving up late-year endorsements, and the continued introduction of proprietary reverse mortgage products that have features like a lower minimum age, or a line of credit (LOC).

To gauge where the market is right now, RMD enlisted the input of industry leaders on-site at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in Nashville, Tenn. in mid-November.

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A strong fall, but tentative optimism

While the current interest rate environment is favorable, the continued reliance on the federal government on the HECM side of the business could potentially change the business’s course if additional program changes are handed down. This is according to Reza Jahangiri, CEO of American Advisors Group (AAG).

“I think the external conditions are very favorable because of the rate environment, because of the stability and the trajectory of the MMI Fund and the fact that there were no changes for the first time in many years,” he said in an interview with RMD. “[This is further] compounded by the proprietary iterations and innovation effort going on. Right now is actually a very stable and strong point for originators. So, the answer is from a snapshot in time, the external environment is favorable.”

This means that industry volume could potentially turn a corner in 2020, but that’s also assuming that these generally favorable conditions remain the same, he said.

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“I think If things remain the same, we’ll start seeing volume slowly to come back in 2020. But, with a sharp rate movement in the wrong direction, with any future changes, [that could change]. I know Brian Montgomery said there’s room for further structural changes, mostly probably back-end focused that have to be addressed. That could change that outcome.”

While encouraged by the rate environment and lack of additional changes, there is still work to be done to connect with potential senior borrowers in a more demonstrable way. This is according to Kristen Sieffert, president of Finance of America Reverse.

“I think we have a ton of work as an industry to continue to expand on the product, appeal to more people, really address our perception problems and find better ways to connect with the consumers, because I just don’t think we’ve done that well yet,” she said. “There’s just such a huge opportunity if we can crack the code. And, I think it’s going to take a different outlook in order to get there, because the way that we’ve tried to do things in the past really haven’t helped us get over the hump and the hurdles. Obviously, the government product changes haven’t done us many favors.”

Volume increases, product improvements

Increases in volume have led to feelings of greater optimism to the table from some of the company leaders, but that optimism is still tempered by the potential ability for new program changes on the HECM product.

“[The business] obviously feels a lot better than it did,” said Scott Gordon, CEO of Open Mortgage. “Volume is up. I’m cautious about what factors affect us in 2020. I think products are getting better. Some of my meetings have been about new products that are just showing up. As long as interest doesn’t move too much against us, it’ll probably be a great year next year.”

The idea that the products are getting better is also a sign of positivity for Chris Mayer, CEO of Longbridge Financial. Mayer also reports seeing higher levels of volume, but also tempers that fact with the source of some of that increase, and that the industry needs to focus on broadening its customer base in order to thrive in the future.

“Volume is certainly measurably higher than it was even a few months ago. But, as we saw from the FHA endorsement data, certainly refinances are a part of that pickup in volume,” Mayer said. “And so, we should be careful in measuring volume. […] We should, in part, think about [the idea that] turning the corner is not just about serving the same customers we have before, but serving new customers.”

Improvements to the product are also partially credited with a noted increase in volume, while also noting that Longbridge doesn’t have as much refinance activity as other reverse mortgage lenders.

“I think we have much less refinancing than other companies do, and we’re seeing volume increased 30-40% or more over the last several months,” he said. “But, some of that is clearly interest rates and the ability of borrowers to get more money and I think some of it is the result of the product continuing to see improvements.”

Growth sources: HECM refinements, proprietary products

While reverse mortgage business growth will not be extraordinary in 2020, it will still likely increase because of HECM product refinements and the continued positive outcomes provided by new, proprietary products. This is according to Mike Kent, the president of Liberty Home Equity Solutions.

“The long and short of it is that I think we’ve gotten through that initial shock of the [October 2017] changes and appeal apps,” he said. “We’ve begun to restructure our origination processes that facilitate it, and from now over the next five years, I see the HECM business growing. I don’t think it’ll grow like a hockey stick, but I think we’ll have good solid steady growth, as we’ll have probably good, solid steady growth also with proprietary products.”

Proprietary innovations are also a source of optimism for 2020 business for Kristen Sieffert and FAR, a company with multiple product variations under its proprietary HomeSafe brand.

“Being able to run and grow a business with changes happening every year, and not being able to plan for those changes has been difficult,” she said. “So, I think proprietary has definitely been a welcome entrance into the market to help all of us find a more solid footing for which to grow our businesses.”

This edition of the RMD Report is sponsored by national appraisal management company Class Valuation.

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  • If one stands back and looks at the comments, how are they that much different from five years ago? In December 2014, we were just starting to deal with the changed HUD made on September 30, 2013 and August 4, 2014. Financial assessment was starting to come into focus on the horizon. The HECM endorsement volume for fiscal 2014 was reported at 51,651 endorsements which is about 65% higher than the 31,260 reported for last fiscal year.

    Reza’s comments were among the more realistic outlooks. There may actually be grounds to be ecstatic about the “growth in proprietary reverse mortgage production” — if the industry just had reliable and verifiable data to grasp presenting what is going on with these products. Unfortunately the secrecy about proprietary reverse mortgage originations makes it look like another case of irrational exuberance. Many may not understand the application of that last phrase. In 2007, many were declaring that by the end of 2010, the number of proprietary reverse mortgage originations for 2010 would exceed HECM endorsements for that year. Then there was the craziness of those who had declared there would be 300,000 HECM endorsements during fiscal 2018. The main prediction as reported by NRMLA was made at least 4 years before the start of fiscal 2018. Of course fiscal 2018 produced less than 17% of those predicted 300,000 endorsements.

    Of course there is the standard obligatory reference to optimism. And we see it in some of the comments about growth in HECMs over the next five years. Yet where are the stats to back that up? If HECMs refis survive, we might reach close to 37,000 HECM endorsements during fiscal 2020. If HECM refi were eliminated early this fiscal year, we could even see a reduction in fiscal 2020 HECM endorsements when compared to total HECM endorsements for last fiscal year. Yet we are already one-sixth through this fiscal year.

    Then there was the comment about HECM refis. I have reviewed the endorsement figures for both fiscal 2018 and 2019 and there was not one month in fiscal 2019 where refi endorsements reached even 200 endorsements. The total endorsements for fiscal 2019 for HECM refis was a unexciting total of 1,688. That same total for fiscal 2018 was 5,848. The total for the month of October 2019 was 328 HECM refi endorsements. Yet the Case Number Assignments for HECM refis since July 2019 are growing. The four months ended October 31, 2019 are backlogged as inventory but should be reported in HECM refi endorsements through September 2020. So far HUD has only provided endorsement breakdowns through October 31, 2019.

    Being realistic means taking a hard look at the facts and not being unduly enthusiastic about questionable claims. It also means preferring facts to anecdote or even hearsay. Being wrapped up in pleasant thoughts when facts speak differently is not how to increase HECM volume.

    There is yet one question that looms in the next five years, is HECM volume returning to secular stagnation? Some do not like this term but it is a fact it ended on September 30, 2019 but we can easily return to a new period of secular stagnation.

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