Americans are piling on debt as inflation soars

Older homeowners are getting hammered by a one-two punch with inflation approaching 10% and with recent declines in stocks and bonds in an increasingly volatile market. As a result many older Americans may be racking up more consumer debt.

Household debt soars as seniors get squeezed by inflation and market volatility

Older homeowners are getting hammered by a one-two punch with inflation approaching 10% and with recent declines in stocks and bonds in an increasingly volatile market. As a result many older Americans may be racking up more consumer debt. 

On August 2nd the Federal Reserve Bank of New York issued a press release noting that household debt has reached an unprecedented $16 trillion dollars in the second quarter of 2022. Mortgage balances…

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1 comment

James E. Veale, MBT August 11, 2022 at 2:20 am

While there is much logic in what Shannon presents, in the 18 years that I have been involved in the industry, I have found seniors to defy industry logic, particularly when it comes to Baby Boomers. January 1, 2008 (the day the first Boomers turned 62) was supposed to be a huge inflection point in the origination of reverse mortgages due to the Boomers turning 62 at the rate of about 10,000 per day for the following 19 years; their appetite for favorable mortgages was supposed to be insatiable.

Yet Boomers have never seemed to turn to reverser mortgages the way their elders did. Fiscal year 2009 was a plateau year for total HECM endorsements followed by three years of loss (31%, 8%, and 25% respectively); these losses are based on comparing the current fiscal year’s total HECM endorsements to that total for the prior fiscal year. The total HECM endorsements for fiscal 2012 was less than half of the total HECM endorsements of fiscal 2009. Following fiscal 2011, six straight years of slightly downward slopping peak and trough secular stagnation ensued. Then came fiscal 2019 with its 35% loss in total HECM endorsements. In the following three years we have been in recovery. This fiscal year is expected to result in the largest total HECM endorsements since fiscal 2011.

Yet despite the efforts of FHA to provide the best empirical data to the industry rather than using such data to derive reasoned and realistic conclusions, many in the industry rely on anecdotes which have little empirical data supporting them. For example, the total H4P and Traditional HECM endorsements (or first time HECM borrower endorsements) during the period of July 1, 2021 to June 30, 2022 (the latest data provided by FHA) was 12.3% smaller than that same total during the period of July 1, 2020 to June 30, 2021. What is so strange about this fact is we are being told that the number of first time HECM borrower endorsements over these two 12 month periods has not changed much. There are even saying that first time HECM borrower endorsements are increasing due to increased endorsement volume coming from CFP, CPA, and attorney referrals. Yet there is evidence of growth in the first time HECM borrower endorsements. This but one example of turning away from empirical data to provide an optimistic outlook on the growth in referrals from the professional and sales communities that are increasing first time HECM endorsement volume. Such cannot be seen in anything other than highly unreliable anecdotes.

We must not allow anecdotes to supersede fact or we will be wondering for decades why this industry grows so suddenly and then falls by 30% or more the very next year. For example, after only 10 months of HECM endorsements, this fiscal year already has more HECM endorsements than any fiscal year in the last 11 (i.e., back to fiscal 2012), other than fiscal years 2013 and 2015, Yes, it is true that the lower interest rates of early fiscal 2022 was an effective catalyst to the growth in HECM Refis this fiscal year. Further, when comparing total HECM endorsements for fiscal 2022 to fiscal 2021, it is expected that the percentage growth will be around 30%. Yet there is also an expectation that total HECM endorsements for fiscal 2023 will result in a drop in total HECM endorsements of between 37% to 41% when compared to total HECM endorsements for fiscal 2022; this is the largest anticipated percentage drop in the history of the industry. Yet I have yet to hear anyone state that the drop will result in total HECM endorsements being less than that total for fiscal 2019 of about 31,300.

So what is so different between the anecdotes about the composition of the HECM endorsements for the two 12 month periods ended June 30, 2021 and June 30, 2022 and the expectations for the estimated HECM endorsements for fiscal 2022 and fiscal 2023? The anecdotes have been disseminated despite readily available empirical evidence provided by HUD disproving that there has been some growth in the first time HECM borrower endorsements for the twelve months ended June 30, 2022 when compared to that total for the twelve months ended June 30, 2021. The estimates for the total HECM endorsements have their roots in empirical evidence provided monthly by HUD through the FHA HECM Snapshot Reports for endorsement information and the FHA Single Family Production Reports for CNA (case number assignment) data and it is also based on the current modified 12 month trailing conversion rate which is derived from the empirical data found in the FHA Single Family Production Reports, the monthly FHA HECM Summary Reports and the four month period it takes for an average application (which closes) to go from the date that a CNA is obtained to the date that that HECM is endorsed.

Soon there will be admonitions about sounding overly pessimistic despite the source of the data and how realistic the conclusions made from such data may be. Yet the problem is neither about sounding overly pessimistic nor overly optimistic but rather maintaining a vision that is reasonable and yet realistic in the midst of more turbulent times. In the last few days I have heard about large monthly losses being incurred in retail operations due to the unrealistic expectation that marketing costs should not be reduced based on the unrealistic expectation that HECM volume would see no appreciable reduction during the last half of this fiscal year. Yet the same pattern we are experiencing this fiscal year is proportionately only a little worse than experienced during the last half of fiscal 2009 (the best fiscal year for total HECM endorsements in the history of the industry).

So let us hope that the actual results for fiscal 2023 HECM endorsement volume are much better than estimated.

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