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   James E. Veale, CPA, MBT

   March 2, 2019 at 1:38 am

   When there are business interruptions like the recent federal government shutdown, it is imperative that results of production during the months of the shutdown and shortly thereafter be subjected to measurement tests beyond those performed during more normal times. First, we know that the total endorsements for the first five months of fiscal 2019 total 13,045 for an average of 2,609 per month. The average total of endorsed HECMs per month for the first two months of fiscal 2019 (October and November 2019) was 2,822. Assuming all closed HECMs on hand at HUD were processed as far as possible by February 28, 2019, the average number of HECMs endorsed during the two months when the shutdown was going on and the entire month thereafter was 2,467. This indicates that production of endorsed HECMs has been in decline since November 2018.

   Switching gears, we need to look at the impact of the November and December 2019 Case Number Assignments on the volume of endorsed HECMs during March and April 2019. The case numbers assigned during November 2018 totaled a mere 3,801 (the lowest since January 2018) and for December 2018, there were only 3,194 case number assignments, the worst month for case number assignments since October 2017. So the total endorsements expected for March and April 2019 are under 4,500 based on last fiscal year’s modified and annualized conversion rate of 63.8% for a monthly average of under 2,250 per month indicating further erosion in endorsed HECM volume.

   Using 1) HECM case numbers assigned from June 1, 2018 through December 31, 2018 and 2) the same 63.8% conversion rate from last year, the total for endorsed HECMs for the first seven months of fiscal 2019 is expected to be about 18,750 endorsed HECMs. Extrapolating that total to 12 months, total endorsed HECMs could likely be about 32,150 for fiscal year 2019. That total would be 16,000 HECMs lower than for fiscal 2018. Remember fiscal 2018 endorsed HECM volume was the worst fiscal year total for endorsed HECMs (at 48,359) since fiscal year 2005. The expected total of 32,150 would bring an end to secular stagnation since fiscal 2018 had the lowest count for HECMs of the six years that precede fiscal 2019.

   Many have hoped that the end of secular stagnation would be due to higher demand for HECMs, not lower. Through the expected endorsement count for the first seven months of fiscal 2019, there appear to be no paths available to achieve 42,000 or more HECM endorsements for fiscal 2019. Right now there seem to be few ways to reach even 38,000 endorsements for this fiscal year. Optimism based on wishful thinking overflows our industry. Hard realistic discussions about endorsed HECM volume are at a very real premium!!

   Will fiscal 2020 be better???

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