ReverseIQ Newsletters

Industry Trends – July 2009

The end of August is near, and that means it’s time for the monthly Industry Trends report.  We’ve mentioned a couple times already that endorsement volume for the year is running almost neck and neck with last year – it’s a virtual dead heat as 2009 numbers trail 2008 by 21 units. But what makes this interesting is when we begin looking at things on a geographic basis (State, County, and even Zip Code). This is where we see the divergent growth patterns that make a market a market, and why some of you are seeing weakness while others are seeing strength for the year.

• Of the top 10 states by volume, California, Texas, New York, Illinois, Virginia and New Jersey are experiencing growth this year, with New York leading the way at 47.1%. Heading up the down states, FL has slid 29% vs. last year. (Not on this report, but falling sharply, are Nevada, Michigan and West Virginia)
• From a competitive standpoint, Florida looks a little oversaturated at the moment. 7 of the top 10 zip codes in terms of competition are in Florida. If you are primarily in the 33012, 33155, 33147, 33165 or 33175 zip codes, you are probably finding it hard to find new business these days – particularly with the refinance boom largely behind us.
• Market penetration is moving up, in some cases significantly: DC is now at 6.7%, CA 3.6%, MD 3.5%, FL and OR at 3.0%. At the city level, in Opa Locka, FL over 16% of the eligible homeowner households have taken out a reverse mortgage. In Compton, CA, the number is up to 14%. Take a look at the top 10 cities by market penetration on page 2 – all of these areas have been hit hard by the recession and home price declines.

We get asked all the time by readers how they can use our reports to make more money.  It’s the right question to ask given the scarcity of risk capital these days and we’re sure each of you are thinking hard before committing resources toward anything.  Compare your company’s state volume changes  over the past year against our table on page 1.  If you’re in any of these 10 states, are you performing better or worse than the industry average?

We see many lenders start utilizing better information as a tool to understand where opportunities are being missed, and manage their sales and marketing efforts to ensure that they don’t miss a rising tide as the market changes.  A great example is found just outside our front door here in Orange County, CA, where loan unit volume is up 147% so far year to date and total MCA is up an astonishing 229%!

If you’re licensed in California and missing out on this opportunity that’s a lot more expensive than any report we sell.  Check out our Retail reporting solutions and stay on top of your game as the market changes!

Wholesale Leaders – July 2009

Our Wholesale Leaders report is now available for July, 2009. Wholesale made up 5,392 of the 9,828 units done in July, bringing the YTD number to 35,204. Financial Freedom remains the top wholesale lender for the trailing twelve months, but it’s close. MetLife continues its short-term run, however, and has held on to the top spot for the last two months.

The following tables show how different the landscape looks on a current month vs. trailing twelve month basis. Metlife has certainly seen quite a bit of lift from being the first to offer the 5.56% fixed rate loan, and WAF was right behind with their 5.63% offering. Given the commodity nature of this business, we have seen others begin offering the same rates lately, so it’ll certainly make for more changes in these lists going forward.

Top 10 – Trailing Twelve Months

Top 10 – Month of July, 2009

If nothing else, the stark difference between these two lists should point out that you really should be looking at the most timely information possible to run your wholesale business.  We humbly suggest our Wholesale Analytics Reporting service is the tool you’re seeking.

Continuing Trends

Other top gaining Wholesale Leaders include Generation Mortgage, Urban Financial and Genworth Financial, all more than tripling their Wholesale volume over the past year.  The turmoil in the Wholesale side of the business has been much commented all around our industry, but these numbers certainly drive home the changing realities as opportunitistic competitors pick up business while some of the historical leaders struggle.

Check the report below for more details and don’t be afraid to drop us a line if you’d like to compare notes on what this might mean for your business.

Claims, Subsidies and Forecasts – Oh My!

As you all no doubt have noticed, the $798 million FY 2010 HUD subsidy request for the HECM program is the story that won’t (and shouldn’t) die.  We just read another interesting article over at Reverse Mortgage Daily and since we don’t mind stirring the pot a bit occassionally, thought we’d chime in.

The article focuses primarily on the foreclosures HUD is experiencing on HECMs written in California, Florida, and other particularly hard hit corners of the national real estate market.  While the article is a bit short on hard numbers (How many foreclosures?  How big a loss for the HECM insurance fund?) and only indirectly refers to topics of interest like the $798 million subsidy request (still working its way through the political machine) and default/foreclosure policies for HECM (will HUD start enforcing T&I defaults through foreclosure), it brings up another interesting opportunity.

We’ve stated here before that the FY 2010 HECM subsidy request has nothing to do with HECMs endorsed in prior years, but it bears repeating given that this was one of the first questions in the article comments.

Why Actuals Aren’t As Important As Forecasts

We and others have been passionate (as much as you can be about accounting) about seeing a full audit of actual claim experience on the HECM program, but it’s important to also understand that this isn’t a silver bullet to the current subsidy challenges.

While FHA does periodically publish some information about their actual claims activity (including a great presentation that we’ve reposted here for ease of reference), let’s keep in mind three big challenges when dealing with this data, even if they did publish everything that happened thus far:

1) There are still loans active from very early years of the program, including 1990.

2) Until all loans are resolved for a few high volume years, we won’t have a satisfying ‘actuals’ answer as we’ll always have to rely on projections -the industry didn’t generate enough volume to be statistically reliable until much more recently and it takes 20+ years to have all the loans resolve.

3) Even if we had a high volume year fully resolved to rely on, it isn’t likely to provide nearly the satisfaction that we might expect simply because the one thing everyone can be sure of is that home price changes in the future won’t mirror the past.

So at the end of the day this is always going to be a forecasting exercise no matter what we do, and while we can feel more comfortable with more data/experience to rely upon, we’re just going to have to get used to being wrong when we try to predict the future.

Forecast Errors Are Inevitable, Tolerance Is Not

The real question seems to be what level of tolerance do we have for the potential magnitude of our errors in forecasting, plus or minus, in any given year? Given the political process/environment and the fact that the program is now in a government insurance fund that requires annualized accounting rather than blending the plus/minus forecasting errors over several years to achieve a longer term net number like most private insurance companies, the tolerance seems to be much lower at the same time the political process is directly affecting the most important inputs to the forecasting process.

The sooner we as an industry can get comfortable with managing some of these risks together with our key stakeholders in the political and regulatory process, the better.