The mortgage meltdown: Are reverse mortgages recession-proof?

The mortgage meltdown.
Are reverse mortgages the recession-proof solution?

The pieces are now falling into place. Consumer spending has dropped considerably. Large ticket items and even housing could see deflation. Inflation is crushing consumers who are now cutting back on discretionary spending. Last week the nation’s two largest retailers Walmart and Target reported massive drops in profits. Target alone shed 25% of its stock value last week after reporting a stunning 52% drop in profits. CNN Business reports Target was also forced to write down the value of excess inventory that’s just sitting in warehouses. In other words, consumers are on strike only buying necessities.

Traditional mortgage lending is feeling the full force of economic forces that have returned to roost after a decades-long absence; inflation and rising interest rates. 

On the supply side…

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1 comment

James E. Veale, MBT May 23, 2022 at 8:01 pm

The highest year for H4P endorsements since 9/30/2017 was fiscal year 2018 with just 2,610; the worst such year was fiscal 2021 with just 2,230 for a drop of 14.6%. The highest year for Traditional HECM endorsements since 9/30/2017 was fiscal year 2018 with just 39,869; the worst was fiscal 2021 with just 26,167 for a drop of 34.4%. Those drops are alarming.

Both totals are considered first time HECM borrower loans; however, just because a consumer gets a new home with a HECM, it does not necessarily mean that the last home the borrower sold did not have a HECM. But let us assume that all H4P borrowers are indeed first time HECM borrowers. So now look at the total endorsements for HECMs associated with first time borrowers.

Total HECMs for first time HECM borrowers for fiscal 2018 is 42,479 while that same total for fiscal 2021 is 28,397 for a drop of 33.2%.

Two material conclusions can be drawn from this drop in first time HECM borrower production. The first is that it will not be easy to gain back 50% more first time HECM borrower endorsement production over fiscal 2021. That should result in lower total endorsed HECMs in fiscal 2023 than in fiscal 202 (yes, I skilpped fiscal year 2022) while HECM Refis are tanking meaning that total HECM endorsements should be lower than same sum in fiscal 2021. The second conclusion is that despite all of the rhetoric about how well the industry is doing through Realtor and financial advisor/planner referrals, a 34.4% drop in first time borrower HECM endorsements means there is no credible empirical evidence supporting that myth.

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