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James E. Veale, CPA, MBT December 3, 2018 at 3:59 pm

The November 2018 endorsement count proves once again that endorsements following the 10/2/2017 changes (found in Mortgagee Letter 2017-12) did not bottom in either the months of April or June 2018. All previous talks of nadir, bottoming out, reaching bottom, or recovery were and remain premature. The truth is as to a nadir after 10/2/2017, the industry is still in free fall with no confirmation of reaching a low just yet. Although edited, here is what I wrote in another publication:

Following the April 2018 drop, only May 2018 had endorsements exceeding the April low of 3,345. Quickly thereafter, June 2018 came in (15.2% lower than the April 2018 low) with only 2,838 endorsements. Now the November 2018 count is even 10% lower than the count for June 2018 at just 2,553 endorsements. Not only is the November 2018 endorsement count 10% lower than June’s but it is also 24.7% lower than the count for April 2018.

With yet a new low for endorsements following the 10/2/2017 changes, where is this recovery? This is not just a rocky road to recovery, it is a further demonstration that the drops in endorsements since 10/2/2017 may not be over.

The HECM Case Numbers assigned in September 2018 were 17% lower than the HECM Case Numbers assigned in August 2018. In fact following 10/2/2018, there have been seven months with better HECM case number assignment totals and all of those months ended before February 2018. So be prepared, fiscal 2019 could have even a lower endorsement total than that of November 2018.

One must remember that few, if any, HECMs which were endorsed in November 2018 were subjected to the appraisal review mandated by Mortgagee Letter 2018-06. Listening to anecdotal information about the impact on demand due to appraisal review, demand may drop as much as another 15%. If that is the case, the industry will be seeing monthly endorsement levels that it has not seen since fiscal 2004 when total endorsements were just 37,829.

Unless the road to recovery means lower endorsement numbers, then we are not on it and things are only getting worse. Does this spell the end of the HECM program? No, actually lower endorsement counts mean lower gross losses to the MMIF. We also know that the program survived even 18,097 endorsements in fiscal year 2003 which was only the second year of endorsements over 10,000 in fourteen fiscal years. The fiscal year before only had 13,049 endorsements meaning the endorsement count for fiscal 2003 was 38.7% higher than the endorsement count for fiscal 2002.

Finally, the endorsement count for November 2018 was the lowest such count for any November going back to November 2003. The November 2018 count is 17.4% lower than the endorsement count for October 2018 and the November 2018 count was 46.6% LOWER than the endorsement count for November 2017.

We are quickly going from fiscal years of endorsement stagnation to one of horrific loss in endorsements. If I hear another optimist try to make this into “Happy Days Are Here Again” ….

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