Challenges to HECM Growth & Measuring Success
Reverse mortgage endorsement volumes have continued their slide after a brief recovery. Despite the increased acceptance of the press and financial planning community and the ever-growing need of soon to be retirees, the Home Equity Conversion Mortgage industry finds itself challenged to grow. Welcome to the Industry Leader Update.
Perhaps we are using the wrong standard by which we measure our industry’s success in reaching age-eligible homeowners. After all, can we honestly say it is an apples-to-apples comparison to compare early HECM volumes with their limited loan qualification guidelines with the reverse mortgage of today?
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We should continue to measure volumes against historic figures as a way to gauge the impact of the changes on the industry. These changes – will in most cases warranted and for the good of the program – have not come without cost.
My suggestion would be to add metrics that will support or refute the notion that the changes have achieved their desired effects. Taking a few steps backward in the development of the HECM industry is not a bad thing IF the product is MEASURABLY better and industry MEASURABLY stronger.
The industry simply doesn’t have the teeth and investment availability to grow. Other than TV advertising which is a process that plateau’s, there is very little capability today to gain the footprint that is needed to generate enough revenue to build upon ever more graduated marketing efforts. More endorsements means more revenue, more revenue means more utilization of seasoned professionals to do their job. Its simply isn’t there.
In the late 60’s California began looking at ways to mitigate smog emissions. It was in this period that it was determined that large vehicles were large polluters.
Over the next two decades domestic car makers saw emissions laws and competition reduce sales. Should they have changed the standard by which that industry measure success?
Pharmaceuticals are constantly experiencing competition from generic drugs as patent protection ends. Not only are the number of units sold per month generally going down but so are the sales price per unit dropping. Should they change their standard of measuring success?
Maybe a new metric should be used especially after the horrible experience of the Extreme Summit and its misleading endorsement projections. But a new metric for the sake of less disappointment may in and of itself be too significant of a sign of failure and defeat.
It has become very clear to this industry veteran that all of the tinkering, changes, revisions, etc. over the last several years under the guise of “Making the HECM a stronger and safer product” have been done for the sole purpose of keeping the annual endorsements at an FHA deemed acceptable level. What is this magic number you ask? FHA has deemed the acceptable annual endorsement number to maintain the HECM program is 55,000.
What’s the evidence? The total number of endorsement’s from 2012 through 2015 = 224,598. Divide that by 4 and what do you get? 56,149.5. We are on pace this year to get just north of 50,000. Let’s use the current annual number at of the end of May as our factor. 33,476 / by 8 = 4,184.5 * 12 = 50,214. Add this number to 224,598 and you get 274,812. Divide bv 5 and viola you get: 54,964.5. Just about Spot On.
What’s the proof? All of the factors that Shannon just talked about in this article. Every potential positive growth aspect over past 4 years has been met with an equally negative adjustment from FHA. There is No Question that FHA is continuing this balanced formula approach with the recently announced changes. They will surly offset any potential future growth aspects that are forthcoming.
How long will FHA keep this target of 55,000? As long as they want to…