Justified Optimism?

Are we bouncing back? Is optimism justified?

If there’s a buzzword in our industry it’s optimism. It’s a recurring theme for our industry which has been beset by more than its fair share of challenges and setbacks. The hopes of a better year are often boosted in the wake of the announcement of no major HECM changes, a spike in month-to-month endorsement volumes, or the promise that proprietary or private reverse mortgages hold.


The Positive Realist February 10, 2020 at 12:35 pm

Let us consider the percentage of counseling sessions now dedicated to proprietary (or private as Shannon describes them) reverse mortgages (PRMs). The percentage seems impressive until one considers that no one is providing the fallout rate from counseling to closing on PRMs. We have been told by RMI that the fallout rate for HECMs is about 50% following counseling. There is also hearsay that indicates that the number of PRMs closed last fiscal year was between 3,000 to 6,000. Since we know that about 50% of all HECM counseling sessions go through origination to endorsement, that means that for HECMs, there were about 62,000 HECM counseling sessions last fiscal year. If we assume that was 70% of all reverse mortgage counseling sessions, then total counseling sessions reached about 88,000 sessions which mean that 26,000 of them were PRM related.

Assuming total PRM originations were 3,000 last fiscal year, that means that the fallout rate following counseling was about 88.5% or put another way, only 11.5% of PRM counsellees obtained a PRM following counseling. So let us be a bit more optimistic and say that PRM closings last fiscal year were 6,000 then the resulting fallout rate is 77% or the closing rate following counseling is 23%. (Why there is no lag period between PRM counseling and PRM originations is that a RPM closing is NOT dependent upon obtaining a FHA endorsement the way a HECM is.

The Cynic February 10, 2020 at 1:30 pm

The first time we saw over 5,000 Case Number Assignments (CNAs) following September 2017 was August 2019 with 5,075 CNAs.(September 2017 had the largest CNA count for any month in the history of the industry at 20,400.)

Since August 2019, we had two more months with CNAs over 5,000. September 2019 went down slightly to 5,025 for a 1% drop from August 2019 but then October 2019 rose to 5,600 HECM CNAs for a 11% increase over the September 2019 HECM CNA total. October 2019 is now the largest CNA total for any month post fiscal 2017.

Yet November 2019 dropped 20% to just 4,481 HECM CNAs. The month of December 2019 saw a drop of 7% to just 4,165 HECM CNAs. This fits the pattern of ongoing endorsement stagnation. The outlook for HECM endorsements for the second quarter of fiscal 2020 will be about 9,540 HECM endorsements in total. That puts total HECM endorsements for the first half of fiscal 2020 at 18,000 HECM endorsements which would be about 2,400 more HECM endorsements than for the first half of fiscal 2019. While this indicates that fiscal 2020 will end with more HECM endorsements than for fiscal 2019, the difference is so low that fiscal 2020 could easily be part of a new period of stagnation. That is especially true after the analysis John Lunde did for RMD when he found sufficient data to state that the HECM originations for fiscal 2018 may have been lower than for fiscal 2019. In that case, fiscal 2020 could be the third fiscal year of HECM origination stagnation but only the second fiscal year for HECM endorsement stagnation.

The interesting thing about the expected 2,400 HECM endorsement increase for the first half of fiscal 2020 over the first half of fiscal 2019 is that 65% of that increase (or 1,550 HECM endorsements) are expected to come from HECM Refis. Will that phenomenon push HUD to end HECM refis? Doubtful.

Bill Binkey February 13, 2020 at 2:46 pm

Boom? “…measured optimism” is an excellent observation.


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