As we closed out a tumultuous 2018 reverse mortgage professionals were not anticipating a blockbuster month for HECM endorsements. However, many were taken aback when December endorsements came in at a meager 1,751 units. Even factoring in the government shutdown which halted endorsements on December 21st, estimates would have only placed us at 2,300 plus units had the government remained fully operational. A record low by any measure. In fact, December was the lowest monthly volume of HECM endorsements since 2004.
Suffice it to say, 2018 ended with a whimper after a year of slumping volumes. Most industry participants rightly point to the trifecta of changes enacted on October 2nd, 2017 as the primary culprit for lackluster loan volume. The brutal truth is that 2019 will continue to test HECM professionals and lenders alike, albeit not an insurmountable challenge.
Jumbo Reverse a Respite for Some
Originators in high-value markets such as California and Washington state stand to benefit in originating private jumbo reverse mortgage loans while decreasing their dependence on the Home Equity Conversion Mortgage. However, most will find themselves working harder not only to prospect older homeowners but the shrinking pool of those with enough equity to qualify.
Future value of HECM program
The specter of increasing ‘losses’ from HECM loans in FHA’s portfolio has been with us for several years and will continue. A dearth of more specific data for HECM insurance claims by real estate market, product design (fixed, adjustable, etc), and average home appreciation rates have left many wondering how countless reforms have failed to stop the bleeding. Such data would help pinpoint the factors contributing to losses in the HECM program. Truth be told, the economic value of the Home Equity Conversion Mortgage will continue to vary significantly each year as its future valuation is extremely sensitive to current interest rates and home appreciation.
And speaking of appreciation, while the application of a national PLF for all HECM loans may be easier to administer, it also increases the likelihood of loans in markets with little or no appreciation resulting in an insurance claim. The result- PLF reductions for all borrowers- regardless of their market or historic appreciation rates.
What lies ahead this year? Expect increased scrutiny of HECM foreclosure timelines, more effective verification of borrower occupancy, and a final determination of the effectiveness of the second appraisal rule.