Wholesale Leads Retail in December Reverse Mortgage Endorsement Drop

Home Equity Conversion Mortgage (HECM) endorsements fell by 13.6% in the month of December 2019, for a total of 2,456 loans according to the latest HECM Originators report from Reverse Market Insight (RMI). The fall was led by the wholesale endorsement segment of business, which experienced a decrease of 21.1% that month, while wholesale levels recorded a smaller decrease of 8.5%.

While the year-over-year fall in HECM endorsements is over 20% when compared with full year 2018 figures, the sheer numbers may not reflect an accurate picture of the whole story according to RMI President John Lunde.

“HECM endorsements dropped again in December, finishing the year at 32,448 loans. That’s a decline of -22.2% from 2018, but that really does skew perception given that 2018 endorsements were inflated by 2017 fundings leaking into the first few months of 2018,” Lunde says in the commentary accompanying RMI’s data. “Suffice to say that most everyone we’ve talked to in the industry lately was in much better spirits than a year ago.”

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For the second month in a row, the average performance of all top 10 lenders underperformed based on industry-wide metrics, with the top 10 recording a total loss of -16.8%. Still, a few top lenders managed to post gains in December regardless of the larger trend.

Reverse Mortgage Funding (RMF) led the pack of the top 10 in gains, rising 45.1% to 386 loans. HighTechLending followed, with a gain of 44.9% to 71 loans after posting disappointing figures in November according to RMI. Open Mortgage also posted a gain of 12.9% to 91 loans.

Although the overall percentage figure is nearly identical to RMI’s previous December HECM Lenders report, Lunde previously detailed for RMD that the HECM Originators report is useful in seeing the splits in and health of the retail versus wholesale channels, which helps to illustrate how lenders are doing from a more individualized and channel-specific perspective.

Read the HECM Originators report at RMI for specific breakdowns and more regional performance data.

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  • A primary assumption underlying John’s comment appears to be: “…given that 2018 endorsements were inflated by 2017 fundings leaking into the first few months of 2018….” Yet can that be proven by any means other than anecdote(s)?

    To understand the problem of delayed funding, one must realize the huge size of the HECM case number volume created by the announcement in the Mortgagee Letter 2017-12 dated 8/29/2017 announcing the 10/2/2017 changes. The HECM case numbers assigned in July and August 2017 already totaled 16,341 before the addition of 20,400 more HECM case numbers assigned in September 2017, the largest total for case number assignments (CNAs) for any month in the history of the industry. In comparison the total CNAs for the last three months of fiscal 2018 were only 13,678 while the total CNAs for the same months in fiscal 2017 was 36,741 (or 269% as large).

    The problem is what John is reporting on are endorsements, not fundings. Large HECM CNA volumes occurring in the final month of a fiscal year has happened twice before in the prior ten year period (on September 2010 and September 2013). Something that happens 30% of the time in a ten year period is not unusual. So for the lenders not to be prepared with adequate funding should not be seen as an appropriate reason for delays in endorsements but rather an error on their part.

    Yet every fiscal and calendar year has exactly the same problem of HECMs with case numbers assigned in the prior annual period being endorsed in the subsequent annual period. Yet John fails to correct for that phenomenon for any other calendar year.

    Without Table B-32 on Page 118 of the HUD Annual Report on the Financial Status of the Mutual Mortgage Insurance Fund for the Fiscal Year Ended September 30, 2018, we would have little idea what percentage of HECMs endorsed in fiscal 2018 had case numbers assigned before 10/2/2017. This is not a schedule HUD has provided in any other Annual Report as to HECM endorsements. So without comparable data for other fiscal years, making conclusions from that one schedule seems somewhat inappropriate and less than conservative.

    As to testing morale, that is highly subjective. Yet on anecdotal basis, many are speaking about higher compensation due to more proprietary reverse mortgage closings as well as higher average home appraisals on HECMs allowing for higher draws at closings.

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