Reverse Mortgage Endorsements Fall Again in December

Home Equity Conversion Mortgage (HECM) endorsements dropped by 13.4% to 2,461 loans for the month of December 2019, another decrease along similar lines to the one observed in November with the six of the top 10 lenders recording endorsement decreases. This is according to the December HECM Lenders report compiled by Reverse Market Insight (RMI).

Similarly to what was recorded for November, every major region in the country recorded drops in endorsement activity in December, though in most cases the drops were generally shallow. For instance, the industry-leading Pacific/Hawaii region recorded a drop of only 10 loans to a total of 839 in December, while most other regions recorded drops between 9 and 50 loans. The one exception to this is the Southeast/Caribbean region, which dropped from 550 loans in November to 402 loans in December, a sharp drop of 148 loans.

Of the top 10 lenders, four recorded endorsement increases. Reverse Mortgage Funding (RMF) rose 61.2% to settle at 303 loans in December, also marking their highest monthly total for 2019. HighTechLending saw an increase of 44.9% to 71 loans, while Open Mortgage rose 12.8% to 88 loans. Synergy One Lending recorded a more modest increase in December, rising 3.5% to 204 loans for the month.

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Overall, HECM endorsements for calendar year 2019 have settled at 32,482 loans, a drop of 22.2% from the calendar year 2018 figure of 41,736 loans. Obfuscating the impact of this drop could be an industry-wide shift that is taking place among some of the major lenders that sees them moving more and more into proprietary reverse mortgage loans.

However, none of the lenders offering proprietary loans have opted to share any data on origination figures for those products with the wider reverse mortgage industry as yet.

Read the HECM Lenders report at RMI.

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  • In 2007, it was predicted by industry leadership that by the end of the decade, HECMs would make up about 25% of all originations, if that, with the other 75% being proprietary reverse mortgages (PRMs). Of course, we all know what happened by the end of 2008.

    There is no clear indication what percentage of HECMs are being replaced by proprietary reverse mortgages (PRMs). For example, would a borrower who begins with a $4,000,000 UPB have ever considered getting a HECM? Of course, not all PRMs close with a $4 million UPB. So without detailed PRM origination information, it is very difficult to know if we are seeing obfuscating of the HECM endorsement situation. It would seem there has to be some but is it large? That probably is not the case.

    It is understandable when PRM borrowers choose PRMs over HECMs when more proceeds are available with the PRM. It is also understandable when the property will not qualify for HECMs such as HUD not approving a condo for a HECM. Some people may feel like the HECM upfront costs are excessive and they do not expect to have the PRM for long which makes some PRM more attractive especially if there is little or no upfront costs with the PRM.

    While obfuscation is an interesting issue, the question does not replace the research needed to see if it exists. So far PRM lenders are intentionally blocking anything close to full disclosure on PRM originations. Translucency has rarely helped this industry even though some have declared otherwise. It is impossible to determine if translucency is all that helpful because you cannot see what actually occurs. In most cases, it seems to be more convenient than successful.

  • Now let us look at the HECM endorsement activity for the first quarter of fiscal 2020 indicates. Total HECM endorsements for the first quarter of fiscal 2020 (ended 12/31/2019) were 1,200 more than the total endorsements for the first quarter of fiscal 2019. Based solely on HECM Case Number Assignments and the November 2019 annualized and modified conversion rate, the estimated HECM endorsements for the second quarter of fiscal 2020 (ending 3/31/2020) seem as if they will also be about 1,200 endorsements greater than the endorsements for the second quarter of fiscal 2019. If that trend holds for all four quarters of fiscal 2020, total endorsements for fiscal 2020 will be about 36,000 HECM endorsements. Yet that is still a good distance off from the HECM endorsement total for fiscal 2018 of over 48,000 endorsements.

    Breaking down the endorsement total by month for the first quarter of fiscal 2020, October 2019 had 3,296 HECM endorsements, November 2019 had 2,842 and December 2019 had 2,461; notice we once again see a downward trend in HECM endorsements with December 2019 having the worst total endorsements for the first quarter of fiscal 2020. The HECM endorsements for December 2019 were also the fourth worst month for endorsements in the twelve months ended December 31, 2019. The worst month for 2019 endorsements was January 2019 which was one of the two months in which a partial federal government was in effect. The other two months with worse endorsement counts in calendar 2019 were August 2019 and September 2019. The differences between the total HECMs endorsed in December 2019 and each of those months were just 120 and 41 endorsements respectively.

    For all of the talk about seeing general growth in reverse mortgage volume throughout the country during the NRMLA Convention, the HECM endorsements for the first quarter of fiscal 2020 are disappointing. Unfortunately, commenting on the optimism over proprietary reverse mortgage originations is very difficult without sufficient verifiable data from independent sources.

    Based on the breakdowns of HECM endorsements and case number assignments (CNAs) provided by HUD in their monthly FHA Production Report, most of the growth in HECM actual and projected endorsements is coming from HECM Refis. While there were only 1,688 HECM Refi endorsements in fiscal 2019, just in the first two months of this fiscal year, there are already 720 HECM Refi endorsements. During the twelve months ended August 31, 2019, there were 3,567 HECM Refi CNAs but in the three months ended November 30, 2019, there were already 2,839 HECM Refi CNAs.

    So almost 60% of the total increase in HECM endorsements during the first quarter of fiscal 2020 is estimated to come from the increase in HECM Refi endorsements during the first quarter of fiscal 2020 (over the first quarter of fiscal 2019). But of the projected HECM endorsement increase for the second quarter of fiscal 2020 over the second quarter of fiscal 2019 of 1,200 endorsements, all of that and more is projected to come from the increase in HECM Refi endorsements for the second quarter of 2020 over the HECM Refi endorsements for the second quarter of 2019 (about 1,450). Yet most of us who have been in the industry since 2005, know that HECM Refis are not a reliable source for sustainable growth.

    Could total HECM endorsements for fiscal 2019 end up larger than the total endorsements for fiscal 2020? While that seems unlikely, the largest reasonable percentage of confidence is about 25% but it seems just as unlikely that HECM endorsement volume for fiscal 2020 will exceed 37,000.

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