2018: A tumultuous year for the reverse mortgage

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.


Angel Booth January 8, 2019 at 4:44 pm

Love getting your feedback and perspective of our industry my friend. Cheers to a rollercoaster of a ride for 2019! I’m always up for a nice challenge:-)

Shannon Hicks January 8, 2019 at 4:53 pm

Thank you Angel. We always appreciate your ebullient attitude!

James E. Veale, CPA, MBT January 9, 2019 at 12:31 am

The HECM program has never been self sufficient. While the industry seems to care if funds are transferred OUT of the HECM program into other programs, there is little, IF any, concern that the HECM program right now is scheduled to raid the forward mortgage programs in the MMIF to offset the losses that the HECM program produced and continues to produce.

We have ABSOLUTELY no empirical evidence that the HECM program has EVER produced anything other than losses based on the fiscal year cohorts of HECMs based on the fiscal year of the related endorsement. Yet as to the most recent actuarial estimates of the gain/loss for each cohort of endorsements by fiscal year since fiscal 2008, both FHA and the independent actuaries show losses for each and every cohort. The total losses are worse as reported by FHA than by the independent actuaries.

As to the MMIF the lowest year for losses for any cohort of HECMs endorsed in any fiscal year, is fiscal year 2014. That is true not only on a gross basis as reflected in the comparative table (FHA versus Pinnacle) showing losses by each cohort for each fiscal year for the HECMs endorsed in those years, on page 15 of the “Fiscal Year 2018 Independent Actuarial Review of the Mutual Mortgage Insurance Fund: Cash Flow Net Present Value from Home Equity Conversion Mortgage Insurance‐In‐Force” (fiscal 2018 actuarial review on HECMs in the MMIF).

The most significant change that has pulled down endorsement production for the industry since fiscal 2014 in the midst of six straight years of slightly downward sloping from peak to valley secular HECM endorsement stagnation (which followed three straight years of horrendous fiscal year endorsement losses) is one thing and one thing alone — Financial Assessment. This is only emphasized when taking the gross loss for each cohort and dividing it by the total endorsements for the related fiscal years; that average shows that fiscal years 2017 and 2018 had THE largest average loss per HECM endorsement in the time that the HECM program has been accounted for in the MMIF.

Months ago it was clearly estimated and stated that the last fiscal quarter of calendar year 2018 would be under 9,000 endorsements. The fact is the total did not reach 8,000 endorsements. Even the size of the endorsements for December 2018 should be of NO real surprise since it would take 3,355 endorsements for December 2018, ESPECIALLY, with the interruption of a government shutdown.

The_Cynic January 11, 2019 at 12:40 am

Today, I just read how one industry leader is saying that volume will improve this year. He never indicated what this year was, fiscal or calendar 2019.

Fiscal 2019 started with the first calendar quarter showed endorsements totaling less than 7,400 which is an annual rate of less than 29,600 endorsements. Based on the case number assignments for September 2018, January 2019 endorsements should be less than 3,600 endorsements when looking at the number of HECMs that the Government Shutdown delayed from getting endorsed. There is no indication that the total endorsements for fiscal 2019 will exceed 48,359 endorsements. Yet there is a strong possibility that total endorsements for fiscal 2019 will be less than the total endorsements for fiscal 2004 of 37,829, although there is little reason to fear that total fiscal year endorsements for fiscal 2019 will be as low as those for fiscal 2003 which came in at 18,097.

Will total endorsements for calendar 2019 exceed the low endorsement count for calendar 2018 of just 41,713? The total for calendar 2004 was just 40,158. Right now there appears to be no way that total endorsements will exceed 40,158 but at present that that the endorsement count for 2019 will be as horrendous as the endorsement count for calendar 2003 which came in at just 21,645.

As in the last decade of stagnation, high losses, and secular stagnation, industry leaders want us to forget current endorsement trends and believe their feelings of a better endorsement future for even fiscal 2019 but why? What those industry leaders share is that none of them were solely dependent on their personal origination production for their entire compensation.


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