Housing Market & Interest Rate Changes

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What recent changes in the housing market and mortgage interest rates mean for HECM lenders

We rarely discuss what is happening in the traditional mortgage market. Yet the larger overall mortgage market and prevailing 30-year mortgage rates have a direct impact on reverse mortgage borrowers and our industry at large.


David Cundiff July 8, 2019 at 10:42 am

well done

James E. Veale, CPA, MBT July 9, 2019 at 1:17 am

There is a lot of anecdote about information on this topic and that. Yet there is little to no empirical evidence offered as proof of such claims. Even then many times the evidence is useless because of its age. At other times, alternative events for trend changes are simply ignored when in fact they have a greater impact on the outcome of the trend. Let us look at the so called impact to the MMIF from the mortgage bust of fiscal 2007 and 2008.

We all hear the anecdote about how the loss in home values in 2007 and 2008 caused real problems for the MMIF. The reasoning is that that huge losses in value surely harmed the MMI Fund. Well the problem is, the only HECMs accounted for in the MMIF are those endorsed after 9/30/2008; all other endorsed HECMs are accounted for in the G&SRI Fund. So most of the loss in HECM collateral value during 2007 and 2008 will be absorbed into the G&SRIF.

It is important to have a general understanding when the typical HECM application gets endorsed and how long it might take. That can be seen in the left column of Table B-32 on Page 118 of the HUD Annual Report to Congress on the Financial Status of the FHA MMIF for fiscal 2018. That column shows what percentage of the endorsements for each month of fiscal 2018 comes from HECMs with principal limits impacted by the principal limit factors (PLFs) mandated by the 10/2/2017 changes. Interestingly, November 2017 only had 0.15% while February 2018 had 42%. Then May 2018, had 89.73% which means that 10.27% of the HECMs endorsed in that month had a case number assigned in fiscal 2017, mostly likely September 2017.

The importance of understanding the timing of endorsement is so that you will not be sucked in by someone who comes along and says something like falling expected interest rates made endorsements in some month higher than expected. Without inside data from HUD that is hard to prove especially when one does not know the percentage of endorsements that had case numbers assigned during the period when expected interest was falling.

There are no months after 1991 where the endorsements for a month are the result of HECM applications made in one month. So the endorsements in May 2018 could come from case numbers assigned in November 2017, March 2018, or any month in between. So to tie endorsement trends to events that change application data monthly is iffy at best. Are there times when falling or rising expected interest rates have a substantial influence on size and trend of endorsements in a month? Absolutely but one must be skeptical until the potential impact of other factors and other variables have been measured and evaluated.



As to the choice of video with Shannon or video with no Shannon, having Reverse Focus video open showing you as our host and with some video of you off and on throughout the presentation is far more desirable than showing no video of you at all; I like some variety in the video but with a focus on you. You are a very relevant member of the industry and have become a media spokesperson for the industry because you are not camera shy.

Shannon Hicks July 9, 2019 at 7:33 am

Thank you for your inputs. Greatly appreciated my friend.


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