It’s not boom or doom when it comes to the housing market. While Americans are getting priced out of the housing market millions of savvy older homeowners are sitting on a goldmine. Not just a motherlode of equity but a potential source of cash flow that could be mined to help temper the impacts of inflation and as a hedge against financial shocks.
Low interest rates and government stimulus are akin to the 19th-century expansion of the railroads that helped create boomtowns. While the property values surged in such an environment history has taught us such ideal conditions are transitory.
Last spring as the Covid-19 emerged began HECM application activity as measured by case number assignments began to surge. While one could argue such an expansion shows more homeowners are seeking to tap into their record home values the data doesn’t support such a conclusion. Case numbers for
HECM-to-HECM refinances account for 43% of all HECM case numbers recorded in June. While existing HECM borrower’s decision to harvest more of their home’s value is certainly legitimate it doesn’t expand our market footprint.
However, some lenders are seeing an increase in overall HECM application volume. “While we have done some rather successful refinance campaigns this year, it hasn’t been our primary focus. Our overall applications per loan officer are the highest we’ve seen in our company history and that includes higher than normal refinance applications”, AAG senior vice president of retails sales at AAG told Reverse Mortgage Daily.
Despite the prevalence of refinances, some lenders are seeing an overall increase in reverse mortgages from first-time borrowers. Scott Harmes, C2 Reverse National Manager told RMD the bulk of their business is from new borrowers. “We’re getting anecdotal refinance business, but the bulk of our business is in new borrowers”, said Harmes. Other lenders like High Tech Lending and Open Mortgage reaffirmed to RMD the importance of having a mix of both new and existing borrower applications.
So what could dampen the gold rush of home values? An interest rate hike by the Federal Reserve is one. On August 9th Reuters reported two Federal Reserve officials who said that the U.S. economy is growing rapidly and that while the labor market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes. The Fed estimate of 3.5% annual inflation exceeds the central bank’s inflation target of two percent. Should inflation surge the Fed could find itself painted into a corner to use their primary tool to slow inflation.
An imminent rate hike? No. But a move toward a serious discussion to do so? Yes. What’s more likely is a tapering of the Fed’s bond purchasing, which we reported on last week. The Federal Reserve isn’t the only one showing reluctance. Potential homebuyers are increasingly choosing to stand on the sidelines and save their cash being unwilling to purchase a home in an artificially inflated market. This certainly won’t push home values down quickly but it certainly may dampen the growth of home appreciation.
In the meantime, older homeowners may want to cash in on part of their claim and transform some of their home’s value into cold hard cash.
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Editor in Chief: HECMWorld.com
As a prominent commentator and Editor in Chief at HECMWorld.com, Shannon Hicks has played a pivotal role in reshaping the conversation around reverse mortgages. His unique perspectives and deep understanding of the industry have not only educated countless readers but has also contributed to introducing practical strategies utilizing housing wealth with a reverse mortgage.
Shannon’s journey into the world of reverse mortgages began in 2002 as an originator and his prior work in the financial services industry. Shannon has been covering reverse mortgage news stories since 2008 when he launched the podcast HECMWorld Weekly. Later, in 2010 he began producing the weekly video series The Industry Leader Update and Friday’s Food for Thought.
Readers wishing to submit stories or interview requests can reach our team at: info@hecmworld.com.
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2 Comments
The Positive Realist
Saying the pledge of allegiance to the American flag does not make everyone a “loyal” American. It is no different when we hear that so and so is for HECM penetration into the senior market for those who do not have reverse mortgages. Let us look at the breakdown that HUD provides on HECM CNAs (Case Number Assignments).
Using HUD’s latest posted data on HECM CNAs (June 2021), HECM Refi CNAs for the twelve month period ended June 30, 2021 are up 16,908 over the HECM Refi CNA count for the 12 month period which ended June 30, 2020. Comparing the total Traditional HECM CNAs for the same two periods, Traditional HECM CNAs are down 4,303. Total H4P CNAs are about unchanged when comparing the same two time periods. Total HECM CNAs in the two same time periods are up just 11,781.
Look at any time period of 12 months or less that end in November 2020 through June 30, 2021 and the story is the same for CNAs. The increase in total volume is up but the increase in HECM Refi volume is up even more.
So if everyone is taking the HECM penetration pledge, who is accounting for the loss in Traditional HECM CNA volume? Who are the “traitors?”
What is “anecdotal refinance business?” Anecdotal is defined by Google as follows:
adjective
(of an account) not necessarily true or reliable, because based on personal accounts rather than facts or research.
“while there was much anecdotal evidence there was little hard fact”
There is plenty of hard facts on a national level as posted by HUD in its monthly FHA Production Reports.
2 Comments
Saying the pledge of allegiance to the American flag does not make everyone a “loyal” American. It is no different when we hear that so and so is for HECM penetration into the senior market for those who do not have reverse mortgages. Let us look at the breakdown that HUD provides on HECM CNAs (Case Number Assignments).
Using HUD’s latest posted data on HECM CNAs (June 2021), HECM Refi CNAs for the twelve month period ended June 30, 2021 are up 16,908 over the HECM Refi CNA count for the 12 month period which ended June 30, 2020. Comparing the total Traditional HECM CNAs for the same two periods, Traditional HECM CNAs are down 4,303. Total H4P CNAs are about unchanged when comparing the same two time periods. Total HECM CNAs in the two same time periods are up just 11,781.
Look at any time period of 12 months or less that end in November 2020 through June 30, 2021 and the story is the same for CNAs. The increase in total volume is up but the increase in HECM Refi volume is up even more.
So if everyone is taking the HECM penetration pledge, who is accounting for the loss in Traditional HECM CNA volume? Who are the “traitors?”
What is “anecdotal refinance business?” Anecdotal is defined by Google as follows:
adjective
(of an account) not necessarily true or reliable, because based on personal accounts rather than facts or research.
“while there was much anecdotal evidence there was little hard fact”
There is plenty of hard facts on a national level as posted by HUD in its monthly FHA Production Reports.