RMD Report: Sources of 2020 Optimism for the Reverse Mortgage Industry

In spite of declined reverse mortgage endorsements observed in calendar year 2019, the reverse mortgage industry continues to feel general optimism for the trajectory of the business in the early days of 2020. Sources of general optimism include the increasing prevalence of proprietary reverse mortgage products, the signing of new financial legislation and a generally vibrant economy, and continually developing product diversity on the part of reverse mortgage lenders.

This is according to the perspectives of several reverse mortgage industry players and observers, based on outreach conducted by RMD.

Proprietary optimism

Much of the optimism being observed at the moment centers on the continued development of the proprietary reverse mortgage product space, which is steadily narrowing the gap between the originations of Home Equity Conversion Mortgages (HECMs) and other private offerings.

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“2020 is shaping up to be the ‘year’ for private reverse mortgage products,” says Elly Johnson, president of All Reverse Pro Consulting in Atlanta, Ga. “More and more top lenders are introducing the product or enhancing their current products. I believe 2020 will also see more lenders and investors enter the space providing even more product diversity. With the introduction of these products we should settle with a nice mix of the HECM product with the private product filling in the gaps, so to speak.”

Also fueling Johnson’s optimism on the proprietary side was a recent report which indicated that new originations are continually coming from the proprietary space, she says.

“In a recent report issued by New View Advisors, they reported that private reverse mortgages now make up more than 25% of the new originations by dollar volume, so we are beginning to see a shift in the market toward the private product,” Johnson says.

Some of those new products have made a notable difference at the companies themselves. In the case of Longbridge Financial, the recent release of a new proprietary product variation has only bolstered its optimism for 2020.

“With the introduction and strong positive response to our new LOC Platinum product, continued low rates, higher principal limits for HECMs, and greater acceptance in the financial planning community, we are excited to see what 2020 brings,” according to Chris Mayer, CEO of Longbridge Financial.

Additionally, since proprietary origination figures are not reported publicly, an overall reduction in HECM endorsements does not necessarily signify reverse mortgage industry atrophy, according to Reverse Market Insight (RMI) President John Lunde.

“I think there is definitely significant ‘hidden’ activity in the proprietary side of the market that is adding optimism to the industry as we start a new decade,” Lunde tells RMD. “Endorsements were down a bit toward December but that seems more likely to be an endorsement timing effect than a significant drop in funding volumes for HECM.”

HECM perspectives

Looking specifically at the HECM side of the business brings less outwardly optimistic language, though perspectives seem to be generally positive for a few specific reasons, including product diversity and a continuously favorable rate environment.

“2019 ended strong, with appreciable growth in the HECM market,” Mayer says. “At Longbridge, December was our highest month in retail since the October 2017 changes and our second highest month in wholesale, both for HECM and proprietary loans. Industry securitization data show that the overall market is also growing.”

That being said, the possibility of additional HECM program changes from the Department of Housing and Urban Development (HUD) still lingers, however the industry may be exhibiting adaptability to potential changes that include some publicly-discussed legislative and administrative proposals.

“So long as interest rates stay low and house prices are stable or increasing, the market seems likely to grow unless/until HUD changes create significant headwinds,” Lunde says. “At this point I think the industry is approaching enough product diversity (especially with line of credit options) to adapt if HUD were to go back to county lending limits or lower national limits overall, but there would be an issue in some states where proprietary products are not approved yet.”

Nevertheless, the industry should remain on the lookout when it comes to HECM program changes in order to be as prepared as possible for some of the discussed proposals, adds Johnson.

“For the HECM, things seem status quo for now, but with recent hints of HECM-to-HECM refinance changes, we should look to see some guidance in the coming months,” she says. “As the doctor always says ‘No news is good news,’ but we will just have to wait and see.”

Legislative and economic factors

In addition to reverse mortgage-specific debates happening in the executive and legislative branches of the government, the recent signing of a tax extenders bill by the president shortly before the start of the holidays could have a potential impact on the reverse mortgage industry. This is according to Jamie Hopkins, director of retirement research at Carson Group.

“The tax extenders bill that was just passed by Congress and signed into law by the president had a nice end of year bonus for homeowners and the reverse mortgage industry as it now allows the deductibility of your mortgage insurance premiums paid, going back to 2018,” Hopkins says. “While that tax season is done, one could file an amended return but this is unlikely to occur much. However, for reverse mortgage professionals it opens back up this talking point and potential future deduction for borrowers.”

Still, other factors at the highest levels of government could make 2020 something of a wild card, particularly because of the upcoming presidential election and trade questions that remain as-yet unresolved, Hopkins says.

“Focusing on the home and security it brings could be a nice bit of added relief and value in a year that could otherwise feel very uncertain,” Hopkins says. “Remember that individuals view their home as a safe place, both as an investment and physically. The home is bigger than just a financial decision for people, it is primarily emotional and it’s important to both respect and understand what drives people to buy, rent, and borrow when it comes to their home.”

This edition of the RMD Report is sponsored by HEQ, taking place in Chicago this June. Tickets are now available.

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  • Proprietary reverse mortgages (PRMs) are a welcome line of additional products. Yet because lenders have apparently agreed to make stats about this products translucent, there is an unnecessary mystery about them. On the other hand, New View much to their credit have started following the dollar volume of PRMs in their commentary on the reverse mortgage business.

    All of speculation in the article sounds great but it is only because HECM volume has fallen by over 43% since fiscal 2017 that the dollar volume for PRMs has been able to reach 25% of that of HECMs during 2019.

    So if the dollar volume of HECMs were about the same in fiscal 2017 as in fiscal 2019 and the endorsement volume in fiscal 2019 was the same as fiscal 2017, creating a more comparative and relevant picture, the cash volume for PRMs would only be 14% of HECMs.

    Until the industry unlocks the door to PRM transparency, all of the talk about PRMs looks and smells more like Public Relations to pump optimism back into the industry rather meaningful analysis. but remember PRM origination volume may have only been three to six thousand last fiscal year. If HECMs went away in all likelihood so would NRMLA and a lot of the support systems we have today.

    Now pull PRMs out of the discussion and again optimism would be less prevalent. So where is the transparency that supports the optimism we are reading about when it comes to PRMs. Since PRMs are not available in many regions of the country and in at least some, will stay not available for many years to come.

  • At the NRMLA Convention it was reported that there was excitement about growth being seen across the nation. But where is that growth? Again is it in proprietary reverse mortgages where it is hidden from the light of verification by an independent third party? If that is where it is, may be little more than salesman’s puff.

    We know that the HECM endorsements for the first quarter of fiscal 2020 were only 1,205 larger than the HECM endorsement volume for fiscal 2019. At the same time we know the HECM endorsement volume for December 2019 should have been substantially higher than the December 2018 HECM endorsement volume since December 201 was the first month of the partial federal government shutdown when HUD was prohibited from endorsing mortgages.

    So again where is the growth we have been hearing about? Looking at HECM case number assignments (CNAs) we do find substantial growth in one and one area, HECM refis. Right now, projections indicate that the current inventory of HECM CNAs should result in about 1,300 more HECMs in the second quarter of fiscal 2020 than fiscal 2019. Right those same projections indicate that the increase in HECM endorsements is found in the HECM refis which right now project out to be about 1,400 more in the second quarter of fiscal 2020 than in the second quarter of fiscal 2019.

    As indicated many times before, the cut off of for HECM CNAs that will more likely than not result in HECM endorsements (that is for the HECM CNAs that convert this fiscal year) is May 31, 2020 which is just four months and 11 days from today.

    In the first quarter of fiscal 2020, of the 1,205 increase in HECM endorsements, the increase in HECM endorsed refis in the first quarter of fiscal 2020 over the HECM endorsed refis in the first quarter of fiscal 2019 is projected (HUD has not provided a breakdown of December 2019 HECM endorsements as of late January 20, 2020) to about 1,000 of the 1,205 total HECM increase. Again this means that the increase in the first six months of HECM endorsements for fiscal 2020 will mainly come from HECM refis. At this pace expect total HECM endorsements for fiscal 2020 to be about 36,000 HECM endorsements.

  • We all must be optimistic about the future! We can dwell on the past, dwell on the lack of endorsements, but yet, be positive with signs of increased production.

    Can any of us truly predict the future? The future is ours to create, the HECM, the proprietary products at hand serve an important need for our seniors, you can’t minimize that benefit.

    Yes, we need to be aware of what is happening from an endorsement, origination and legislative standpoint, but on the other hand, don’t let it interfere with your optimism or your purpose to serve our senior population. Just let it be an educational tool to capitalize on!

    John A. Smaldone
    http://www.hanover-financial.com

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