Your 2020 HECM Market Forecast




ePath 100K RM leads

An examination of the economic and market forces that will shape federally-insured reverse mortgage lending in 2020.

It’s been said that more people are alive today than have died throughout history. It appears the opposite of that is true when it comes to federally-insured reverse mortgages. Since 2016 the number of HECM loans terminating has exceeded new originations according to the Government Accountability Office. This crossover can be attributed to significantly fewer HECMs being sold since 2009 while loan terminations have spiked since 2014 which are now steadily declining. This sharp increase in terminating loans could very well be why we are seeing some HECM properties remain unoccupied for several months or years.

Despite several false alarms of an impending recession last summer, the U.S. economy is posting some impressive numbers. Consumer confidence is high, wages are increasing, unemployment numbers are at historic lows, while inflation remains in check. Also the Federal Reserve’s decision to…

2 comments

Jay Allen Kaplan January 6, 2020 at 8:00 am

Good video, as usual. My experience is that I am busier now than ever with HECM and some proprietary reverse loans. My marketing has been word of mouth and professional partnerships; that takes time, even years. Today’s boost in volume is also an effect of so many people turning 62. The subject itself is becoming something that more and more people want to, at least; hear about.

Reply
James E. Veale, CPA, MBT January 6, 2020 at 4:17 pm

Jay,

By sheer anecdote, fiscal 2019 was an up year for the industry. One industry leader even described fiscal 2019 as better than fiscal 2018.

Yet numbers tell the story while optimistic anecdotes only help those who are doing well and have a tendency to complain anyway. I know you and others have a habit of calling those who disagree with you as negative even though we are in the same industry looking at the same future. So let us divide industry production into major categories of reverse mortgage products.

While no one person knows the full story about proprietary reverse mortgages (PRMs), reasonably optimistic approximations seem to be that fewer (or even much fewer) than 6,000 PRMs were originated during the FHA fiscal year that ended several months ago (i.e., on 9/30/2019). If the total is actually closer to 4,000 PRMs originated during fiscal 2019, that achievement is excellent when looking at H4P which has yet to reach 3,000 HECM endorsements in any FHA fiscal year. Also there are many states where PRMs are not being offered and even in the states where PRMs are offered, not all PRMs are necessarily offered in those states. So while it seems market penetration of PRMs is slower than in fiscal 2007, there is still significant penetration.

As to HECMs, fiscal 2019 witnessed a percentage downturn (35.3%) never experienced before in the history of the HECM program. While our loss ended at 17,085, the total endorsements were just 31,274. So if 24 of the HECMs you closed in fiscal 2018 and fiscal 2019 also got endorsed in fiscal 2019, then you provided the industry 0.078% of the entire industry’s total HECM endorsements; that means if the average HECM originator did as well as you, there would only need a little more than 1,300 originators. If you saw approximately the same number of HECM endorsements in fiscal 2018, that is less than 0.05% of what the industry did in that year (48,359 HECM endorsements) of much less loss (i.e., 6,933 less HECM endorsements than in fiscal 2017); however, if the average HECM originator also did 24 HECM endorsements in fiscal 2019, the industry would have needed a little over 2,000 HECM originators to have done that much volume.

While no one knows what will happen in fiscal 2020, we do know that the first quarter of HECM endorsements of fiscal 2020 was not great but was a 1,205 increase in HECM endorsements over the first quarter of fiscal 2019. Based on HECM Case Number Assignments (CNAs) and the annualized and modified conversion rate for last month, it seems as if the second quarter of fiscal 2020 could see another increase of about 1,200 HECM endorsements over the second quarter of fiscal 2019. HUD has not released the CNA count for December 2019 yet, so right now (1/6/2020), there is little more that can be stated about fiscal 2020 with any real degree of confidence.

So while 40,000 HECM endorsements seems out of reach for fiscal 2020, we could see fiscal 2020 reach 36,000 HECMs at the end of the next nine months.

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