Why HECM Data Does Not Tell Full Reverse Mortgage Story

When looking specifically at year-over-year trends in Home Equity Conversion Mortgage (HECM) endorsements, the raw numbers do not paint a particularly positive picture on their own. However, there are other factors at play which make the end of 2019 perhaps more positive than some industry observers might believe when looking simply at the raw data, especially considering that proprietary reverse mortgage activity is not public.

This is according to John Lunde, president of Reverse Market Insight in an interview with RMD. In this second half of a recent interview, Lunde touches on why endorsement metrics do not always provide a full, holistic picture of industry performance, and that optimism may, in fact be warranted as the industry progresses further into 2020.

HECM endorsement data as a partial picture

Based on data from the U.S. Department of Housing and Urban Development (HUD), fiscal year 2018 HECM endorsements sat at 48,359, already a record low. Fiscal year 2019, however, was even lower, settling at 31,274. Even with those numbers being a matter of public record, the general optimism that the industry seems to be experiencing in the early going of 2020 appears to be warranted, Lunde says.


“I do think that 2019 was actually a great step in the right direction,” he tells RMD. “If you look at calendar year 2019, and you look at the HECM endorsement volumes, they were down for the whole year 13% from 2018. But, I think that can distort some of the reality, because 2018 – in the very beginning of the year – was really being buoyed by 2017 originations.”

The industry has already turned something of a corner by stopping the proverbial “bleeding” as seen in a downward trend, and removing the distortive effect of previous data actually paints a bit of a different picture, he says.

“2019 was actually a very positive year relative to 2018,” he says. “Even on the basis of what we can see, and just understanding a little bit more about how those numbers get created. HECM volume is likely up in calendar year 2019 relative to calendar year 2018. And proprietary volume, I think, was probably very strongly up in 2019 versus 2018.”

Both of those indicators are pointing the industry in the right direction, he says, and it now becomes a matter of continuing the momentum that the industry has been seeing into the remainder of 2020.

“It’s just a matter of continuing that momentum and continuing to find the next step, [identifying] where that growth [is coming from] and what the natural evolution of those products in the industry should be to to keep the momentum going,” he says.

Optimism for 2020 is still warranted considering HECM endorsements

Some industry observers are openly asking if the reverse mortgage industry’s optimism is actually warranted when considering the HECM endorsement analytics over the past couple of years. The industry itself has a bit of a tendency to look on the bright side, but that does not mean that substantiated signs of possibilities for growth are absent from the current landscape, Lunde says.

“I think [asking about the optimism of the industry] is a reasonable question,” he says. “You think you’d look at the historical volume numbers and trend of what the reverse mortgage industry has been doing for the last several years, and you just think that anybody who is still in that industry after all that [negative activity] might have something wrong with them. I certainly make those jokes regularly. But, I think there are actually good, fundamental reasons for optimism at this point.”

That optimism need not come from a place of simply looking at the proverbial “bleeding” that has been observed, particularly after the October 2017 cuts to principal limit factors, Lunde says. There are very visible signs of positive momentum that should not be ignored.

“It’s more than just saying, ‘Hey, the beatings have stopped,’” he says. “There’s some forward momentum going on, and some volume and revenue indicators that are fairly positive. I don’t think we should get overly excited and think that the 2002-to-2007 heyday of 50% growth every year is realistic to expect. But, I think there’s reason for optimism, and that it’s supported by the fundamentals and the understanding of where the business is at and where it can go.”

Speaking for RMI, business activity has warranted additional investments based on performance metrics, Lunde says. That should communicate that there is economic activity that warrants further investment in expanding the industry’s reach.

“Thinking about just my company and our team here as an example, we’ve definitely made some investments over the last year, and we’re rolling out new products that will help our clients and partners grow the business in ways that get the products easily in front of mortgage companies that haven’t ever sold reverse mortgages before,” Lunde says. “Or, companies that perhaps didn’t really have the tools to quickly and easily interact with wholesale lenders, or reverse lenders that could offer them the expertise to originate the product.”

That activity is not just localized to RMI, either. Partner companies who avail themselves of the its products are also making visible investments in their futures, Lunde describes.

“It’s not just us, but I can concretely speak to what we’ve been seeing in terms of the business itself, and the things we’ve been doing, and why I think some of that hard work and some of those investments have been made over the past year,” he says. “I think they will continue to be made as long as some of those fundamental forces are heading in the right direction.”

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  • “However, there are other factors at play which make the end of 2019 perhaps more positive than some industry observers might believe when looking simply at the raw data, especially considering that proprietary reverse mortgage activity is not public.”

    The problem is not just that proprietary reverse mortgage (PRM) data is private but that there is no independent third party who even gathers that information. No one has sufficient information about PRMs to give us even a substantially correct translucent picture of PRM production. Even if RMI gathered such data, its own revenue stream is so dependent on the industry that RMI cannot be classified as independent.

    Optimism was the cry in fiscal years 2010 through fiscal 2019 (inclusive). None of it was warranted. So what is so different about fiscal 2020? The answer is nothing except perhaps possible growth in PRMs,, i.e., if there was reliable information on PRMs.

    So let us turn to HECMs. We have actual endorsements through December 2019 as well as Case Number Assignments indicating endorsement volume through March 31, 2020. That data indicates that the increase in endorsements for the first six months of fiscal 2020 will be about 2,600 more than for the same period in fiscal 2019. All (but a small portion) of that increase comes from a sudden increase in HECM refis which are hardly known for their sustained growth patterns.

    Let us not forget that the first three years of the last decade were fiscal years of horrific loss. The next six fiscal years formed a period of downward sloping peak to valley secular stagnation. Last fiscal year ended that period of stagnation but it did it through producing the largest percentage loss in HECM endorsement volume for a fiscal year in the history of the HECM program.

    Who is to say if fiscal 2020 is not the start of another period of stagnation? Stagnation is far more likely than the start of a new period of sustained growth. Nothing indicates otherwise.

    Optimism is a feeling that does not require fact. It results in dubious conclusions that we saw most dramatically in fiscal 2015. It has failed the industry for a decade. Rather than being an optimist, some in the industry have started to used the term, “positive realist,” to describe their outlook. This industry is far too disappointing for either optimists or pessimists.

    • As a CPA, John Lunde’s argument is more hypothetical than factual since there is no way to shift endorsement data over to closing based data for HECMs. BUT nonetheless, it is very intriguing!!

      Let us say John Lunde is right and fiscal 2018 was actually worse than fiscal 2019. That means that the percentage loss in fiscal 2018 was greater than 35.3% since the drop would be 24,000 endorsements rather than 17,000.

      I do not believe that John Lunde realizes what he is stating. If the difference between the endorsements is as small as John seems to believe it is, that means that the end of secular stagnation was 2017 rather than 2018, and fiscal years 2018 and 2019 are the start of another period of stagnation which if we had data based on the month of HECM closings rather than the month of HECM endorsements, John may be right and fiscal 2020 is the third year of the start of a new period of stagnation. That would mean that eight of the last nine years ending in fiscal 2020 are years of stagnation. So again why all of the optimism if what we are experiencing another period of secular

      But unfortunately John has no data to give us a clearer picture of HECM activity than endorsements. However, I believe that John’s analysis agrees with my hunch that 2019 and 2020 are part of a new period of stagnation but his hypothetical places the start of the new period of stagnation at fiscal 2018 rather than fiscal 2019 making this the third year of stagnation rather than the second. Now that should thrill the hearts of the ultra optimists in the industry.

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