An honest assessment of HECM loan volumes & consumer demand
Just where does the reverse mortgage industry stand today? Are we on the road to explosive growth, a mild recovery, or are lower loan volumes for the remainder of the year? Somewhere between extreme exuberance and pessimism lies our new reality. Since I’m going to take off my commentary hat for a moment, let us objectively review the numbers.
First consumer demand as represented by FHA case numbers issued when a borrower’s application is submitted. Overlaying FHA case number assignments for 2017 and 18 above 2018 and 19 we can see that application activity has dropped considerably. Due to the government shutdown in December 2018 the best comparisons are in the months of February through July. What is clearly seen is the real-life impact of FHA’s October 2017 reduction of principal limit factors…
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3 Comments
We as an industry continue to blame the October 2017 reduction of principle limit as the primary reason for our extremely low reverse mortgage lending volume.
I must be the only person who sees this differently.
As I have stated on many occasions, I believe that the reason we have such low volume, which has consistently fallen over the last five years is due to our industry’s overwhelming hope that they will convince financial planners that the reverse mortgage is a viable option for their clients.
Almost every article that I read is how beneficial it is that we convince financial planners to use the reverse mortgage in their retirement planning strategy.
You and I both know that the majority of financial planners can’t stand the reverse mortgage.
Why does our industry continue to position the reverse mortgage as a product for the wealthy or well-off?
The reverse mortgage was designed for the average American whose income decreases due to retirement and whose income will decrease even further when a spouse passes.
I repeat the reverse mortgage was never meant for people who are wealthy!
Why that is so hard to figure out is beyond me?
First of all, less than 20% of the senior population even have financial resources that warrant having a financial planner.
Therefore, companys who focus their attention on financial Planners are only focusing on 20% or less of the senior population.
Moreover, more than half of those people who have financial planners are wealthy.
If you were wealthy would you take out a reverse mortgage?
Isn’t that a ridiculous line of reasoning.
Isn’t it smarter to focus the attention on the 80% of senior citizens who actually need the reverse mortgage to live a better quality of life?
And isn’t it better to advertise on TV, radio, in print rather than hope you can convince a person to refer their wealthy clients to you for a reverse mortgage?
I honestly think to myself what in the heck is wrong with the industry?
We all know that AAG is the number one reverse lender by far.
Does it not make sense to duplicate what they are doing?
I am not saying that no financial planner will ever refer business but what I am saying is that you have to overcome a lot of obstacles just to get a loan from a financial planner.
First you are hoping that the company that the financial planner is employed by will permit them to refer clients to obtain a reverse mortgage.
Most large companies are totally against it and the planner could lose their job if the refer clients to get a reverse mortgage.
OK right off the bat we could count all of those people out .
Next you are hoping to overcome the individual financial planners negative attitude toward the reverse mortgage.
Y’all know that most of them do not think highly of the reverse mortgage right?
Next you are hoping that that financial planner that you have finally convinced will I actually talk to their clients about reverse mortgages.
Next you are hoping to overcome those the negative attitude towards a reverse mortgage that those clients that they refer are likely to have.
On top of all of that you’re hoping that they will actually qualify for a reverse mortgage.
Isn’t that too much to hope for?
We cannot hope to change the widespread negative attitude of reverse mortgages one financial planner at a time.
Only mass advertising campaigns will change public opinion.
why have we not figured this out yet?
And the more that guys like you support this unsuccessful financial planner nonsense, the more people you influence that it is a successful way to generate business, when it obviously is not.
While there is a lot of reasoning in your comment, its foundation lacks any empirical data supporting it. It is an interesting story full of unverified claims of fact. It may be true; it may be false. It leaves one full of doubt.
However, I also saw in your LinkedIn Profile that the company you work for is located in Northeastern Ohio providing HECMs mainly for high value properties in California. After reading your LinkedIn profile and the related RMI Originators’ Report, your employer was #47 originator in the industry with 95 endorsements through the 12 months ended 12/31/2018. That information is insufficient to tell how well you or your company is doing.
Looking at the activity of your employer in the February 2019 FHA HECM Snapshot Report (the latest issue), it seems your employer brokered 5 loans through Liberty and 2 through Open Mortgage for a total of 7 loans. Yet none of the related collateral was located in California and the total Maximum Claim, Amounts on those 7 loans per HUD was less than $2,000,000.
There is nothing wrong with the actual results of a business not lining up with its stated purpose for a month or so but it is rare to see that none of the related collateral was located in California.
To me your point is to turn people away from emphasizing obtaining HECM leads through an outreach to financial advisers. Yet in ten years, HECMs for Purchase have not produced 20,000 endorsements in total. So why not harp on that point?
It is the rarest of HECM originators who make their livelihood exclusively originating HECMs for Purchase exclusively while it is somewhat less rare for HECM originators to do the same through referrals from financial advisors. It would be helpful to hear from HECM originators who focus primarily on referrals from financial advisers so that Kevin can gain a better perspective on how lucrative that source of business really is.
We as an industry have heard statements from many in the industry complaining about how slow 2018 business was in comparison to this year. Back in March of this year, some have communicated that they were looking forward to the remainder of this year. Even HUD came to the NRMLA Conference last month telling us that case number assignments were up to almost 5,000 for February 2019 (noted as much better than the 4,200 assigned during February 2018), when, in fact, the FHA Production Report posted a few weeks later showed February 2019 case number assignments to be just 3,916 assignments. It is as if the entire industry is running away from facts and figures.
Unfortunately, all of that kind of talk is premature. Fiscal 2019 is turning out to be one of the worst fiscal years for endorsement losses in the history of the industry. Based on endorsements through the first six months of fiscal 2019 and the inventory of case number assignments for the next calendar quarter ended June 30, 2019, it appears that the twelve months of fiscal 2019 will only produce about 32,400 HECM endorsements. That would be a loss of 15,959 endorsements from the total for fiscal 2018 of 48,359 or about a 33% drop in endorsement volume from fiscal 2018. The previous worst percentage loss in endorsements from one fiscal year to another was fiscal 2010 with a 31% drop in endorsements from fiscal 2009 (the best fiscal year for endorsements).
If 32,400 endorsements is the approximate number of HECM endorsements for fiscal 2019, that means the industry has lost 71.8% of the business it had in fiscal 2009 about a decade ago. To see this more clearly let us look at the three major trends in HECM endorsements since 2009.
First was fiscal 2010 through 2012. This is the worst period for endorsement loss in the history of the industry. HECMs fell from a high of 114,692 in fiscal 2009 to a low of 54,822 in fiscal 2012. In those three years, annual HECM endorsement production fell by 59,870 HECM endorsements. The fiscal 2012 endorsement total was a loss in new business of 52.2% from the total in fiscal 2009.
Second was fiscal 2013 though 2018. In that period of secular stagnation, the industry saw a hill to valley trend on a slightly downward slope. So in that six year period we went from 54,822 in fiscal 2012 to just 48,359 in fiscal 2018 for a loss of just 6,463 HECM endorsements for an additional loss in HECM endorsement production from fiscal 2012 of just 5.6% of what it was in fiscal 2009.
Finally we need to look at the estimate for HECM endorsement production for this fiscal year ending September 30, 2019. Based on the estimated 15,959 HECM endorsement loss from fiscal 2018, the loss in HECM production compared to the endorsement production in fiscal 2009 would be 14.0%.
So adding the percentage loss of 52.2% for the three years following fiscal 2009 to the 5.6% loss for the following six years and then the predicted loss for this fiscal year of 14.0%, the total is 71.8%.
So our current HECM endorsement production today is just 28.2% of what it was in fiscal 2009. In grade school this would be considered miserable failure.Parents would be called in and perhaps tutors, counselors, psychologists, learning specialists, etc. So is there something wrong with our product? Do we need to find new avenues to sell in? The truth is the industry is in no way what it once was.
The HECM desperately needs help. It is not self-sustaining as we were once told. Its actuarially determined losses are now so high that even the President is no longer ignoring them (and his concern so far only seems focused on the HECMs endorsed since 9/30/2008). Why do we not only ignore but intentionally run away from them? (Not one session at the NRMLA conference last month was on this topic. Why?) I love the HECM concept and believe it should work but not without substantial re-engineering. Too many want to hide from the losses in endorsements and economic value in the MMIF (now liability). We have generally veered from confusion on actuarial loss to withdrawing from even understanding it. So endorsement loss continues to its worst percentage level ever.