Three factors that will shape the HECM in 2020
What is presently shaping reverse mortgage production today, and what will influence our future?
First is the ‘feeder’ of all reverse mortgage endorsements. Before any federally-insured reverse mortgage is underwritten, has funds disbursed or is ultimately insured or ‘endorsed’ it begins as a case number- the identifier attached to every submitted HECM application. While most closely follow our monthly Top 100 lenders report, many are not looking at the leading indicator of future endorsement volume- Case Number Assignments– or perhaps a better term would be ‘reported applications’.
Case numbers aside the largest factor to influence future loan volumes is what HUD says or doesn’t say in the coming months. Traditionally August or September have heralded upcoming changes for the following federal fiscal year which begins each October. Will we see another round of cutbacks to the HECM’s principal limit factors, or another layer of loan requirements? While recent comments from FHA Commissioner Brian Montgomery show confidence in the improving financial health of the HECM program, there’s no denying the continued drain from previous HECM loans on the FHA’s insurance fund.
FHA’s 2nd Quarter report to Congress on the Mutual Mortgage Insurance Fund shows 2018 HECM claim payouts are on track to exceed 2017 by over
7 Comments
Shannon, there’s a problem with your Monday morning video. About 30 to 45 seconds into your video when you start to show year to year comparisons, the video stops and shows the Epath Digital Ad.
I tried running it 3 times, and the same thing happened each time.
Owen
Owen- thank you. We were able to fix the about 5:55 a.m. Pacific.
Why isn’t FHA stepping in to protect the RMS seniors facing servicing issues??
Julia,
RMS is not the HUD servicer. Yes, there may be duties HUD has but they are first those of lenders who placed their HECMs with RMS.
Yet something needs to be done by HUD and the sooner, the better.
I disagree that foreclosures are a fractional part of HECM terminations. They are in fact a substantial percentage of total HECM terminations. However, foreclosure with eviction of BORROWERS is a fraction of total HECM terminations.
If we cannot correctly express our thoughts, how can we expect the public to understand what it is we mean. Words have meaning. People cannot easily interpret wrong statements in the way that we mean them. Communication is more than just an art; it is a discipline. When precision is sacrificed for brevity, misunderstandings will occur.
I am of a totally different persuasion than Shannon about the work of servicers. What is the basis of believing that the reporting sent to seniors who are by and large less financially astute than they were at 55 years old is correct? As a skeptic and having experienced odd answers to questions that should be easily answered by more senior staff, every HECM borrower should be on the alert to reconcile and verify the calculations made on their statements from origination. Those who lack those skills should seek professional advice from those who can.
Yes, I know originators hate the clarity of skeptics in this regard but my interest is in the financial well being of seniors not in the uncomfortable feelings of originators when being put on the spot. Originators should always remember that the originator did not choose the servicer; the LENDER did. The originator should transfer servicing questions to senior staff within the lender that they originated the HECM with.
If the statements have been FULLY audited by independent auditors/CPAs and corrected accordingly, I will immediately apologize. But with the responses that I have received over the years, they have been subjected to financial statement auditing procedures but I doubt if all such mortgage statements have been fully audited by an independent CPA audit firm.
I will have more to say on the other points later.
As to case number assignments, Shannon has done a good job of pointing out their value in understanding volume in our industry. Back in the 2007 era, what I call the annualized and modified conversion rate, i.e., the percentage of applications that get converted into endorsements was over 90%. Today that rate is about 64.6%. So what we see today is about 2/3rds of all case number assignments converting into endorsed HECMs.
The HECM case number volume dropped for the 12 month period ended 5/31/2018 dropped from 75,797 to just 50,179 for the 12 month period ended 5/31/2019. The 12 month period ending on May 31 encompasses the period of Case Number Assignments that will compose the primary cohort of Case Number Assignments out of which about 64.6% will convert into endorsed HECMs. Based on these two numbers alone, we should get the sense that will be about a 33% drop in endorsed HECMs for fiscal 2019. In fact, my current estimate, based on the combination of HECMs already endorsed through 7/31/2019 and the Case Number Assignments for April and May 2019, results in an estimated reduction of 32% or more for HECMs endorsed in fiscal 2019 versus those processed for fiscal 2018.
The value of understanding the place of HECM Case Number Assignments should be very high in our industry but unfortunately that data does not seem to have much value in the industry.
The cash outflow to pay for assignments has grown so large in the first two quarters of this fiscal year that the total exceeds the total for every fiscal year other than fiscal 2018. Yet the total for the first six months of fiscal 2019 is only 8% smaller than fiscal 2018.
The total paid out for assignments alone for the six months ended March 31, 2019 is $5.924 billion. The UPBs of the fixed rate Standards are reaching 98% of their MCAs resulting in huge cash drains in the MMIF in order to honor the assignment agreement between the lenders and HUD. While we cannot identify the timing on assignments for adjustable rate HECMs, knowing the principal limit, the expected interest rate, and the MCA we can compute with accuracy when assignment will occur as long as there is no early termination or payments from the borrower paying down the UPB. What we are seeing is a bunching up of the HECM notes needing to be acquired.