December 2009 – App Trends Update
January 17, 2010
Hope everyone had a great weekend and is either enjoying a relaxing holiday or at least enjoying the reduced distractions if you are sneaking in some work today! We thought our readers might be interested in an update to our graph of application trends since the principal limit reductions. Without further ado, here it is:
The most concerning thing about this is the underwhelming ‘recovery’ from the expected slump in October. October’s excuse is that half of those applications were pulled forward into September to beat the principal limit reduction. That starts wearing thin in November since the average of the Sep-Nov (post PL announcement) is 6.4% below that of Jun-Aug (pre-announcement).
But by the time we get to December we have to start searching for a new, lower ‘normal’. The four month period from Sep-Dec is 13.4% below the prior four months. Two key questions come to mind: 1) Are there other reasons besides Principal Limit reductions behind the drop?; and 2) What might the new ‘normal’ application level settle at?
On the first question of other potential reasons behind the reduction, we’ve heard a long list of factors:
- Appraisal reviews leading to fewer closed deals – this would seem to suggest higher fallout rates and fewer endorsements, not necessarily lower applications
- Operational distractions from RESPA changes and NMLA licensing
- Lower broker economics leading to reduced marketing – the continuing shift to fixed rate products would seem to improve broker economics but the trend of originators leaving the industry could be plausibly expected to reduce aggregate marketing support for the product
- Fewer wholesale lenders – fallout from the World Alliance Financial and 1st Reverse shutdowns, plus funding constraints at JB Nutter have reduced the list of available wholesale lenders for reverse
These all might be just interesting sideshows to the main event of principal limit reductions reducing seniors’ demand for HECMs, but there’s no question that some combination of events is reducing HECM demand significantly in the last few months. Based on recent trends it’s possible application volumes for the year could end up as much as 20-30% lower than 2009 (avg 8,000-9,000 per month). There are many factors that could contribute to stronger volume (coops, HECM purchase, new lenders as FHA removes broker license requirements, etc.), but there’s another question that’s less speculative here too:
Would you and/or your company leave the reverse mortgage industry if your volume declined 30% from 2009?
Comment below or Contact us directly if you’d prefer not to comment publicly, but we’re very interested how many people would expect to survive that level of decline.
And for reverse mortgage loan officers, don’t forget to share your thoughts in our State of the Reverse Mortgage Originator Survey.
One additional factor that had a great affect on the volume drop in late 2009 was a seemingly non-ending drumbeat of negative (mostly unfair) press, much of which was driven by organizations and people with high visibility.
A 30% reduction in volume, coupled with increased marketing costs, will likely force many good people from the business. If regulators force reduced revenues many more will leave. But to where they will go who knows since other opportunities in this economy are limited. This will hurt consumers because the survivors will then be able to increase costs due to limited competition.
I totally agree with Mike , the time is long overdue for the industry to hire a National PR firm and then let State affiliates finance the costs in their state to both educate the media and consumers. The level of uneducated options by seemly intelligent people continues to truly amaze me. There seems to be a lot of grant money these days , this would be a wonderful opportunity to work with HUD and use a grant to assist.
One of the big knocks on Reverse Mortgages is the cost. A UFMIP of $12,510 compared to an UFMIP of -0- for a conventional refinance or credit line is too much to stomach for most borrowers with expensive homes and “other options”. We need a reduced UFMIP and an increased monthly MIP as an option.
January through October 50% of my leads were returned primarily due to “short to close”. November through today the percentage returned for “short to close” has risen to 72%. Today, fewer leads are being produced and a larger percentage is being returned. Fewer “net” leads with the same conversion rate leads to fewer loans.
Fewer brokers are still around. A marketing source I used last year sent out an email last month and found that over the last year 90% of his brokers went out of business. I believe brokers are more inclined to pursue the market while the large institutions are content to let the market come to them. By eliminating the brokers you’ll loose a lot of borrowers that would not have considered a reverse mortgage unless prompted to do so by a broker marketing the product. Banks offer reverse mortgages only as an accommodation to the client, not something to be aggressively promoted by the bank as a whole.
As long as reverse mortgages are the only loan a borrower can qualify for we’ve got a market. But “short to close”, for most, is the biggest problem. Next comes cost.
don’t understand your report. i.e. New Day Financial went from #32, to not being listed?
Please let me know what I’m missing.
David Stacy
843.839.5642
David,
New Day Financial did not have volume in 2008, so they were unranked in the prior period. Hope that helps!
http://rminsight.net/hecm-endorsement-archive/Retail_1209.pdf
The new HVCC rules could drive volume still lower. What several of us are even more concerned about is the announcement from HUD that they will be announcing permanent changes to the program. The NRMLA policy conference this summer should be very interesting.
An important issue over the next few months is if Congress will fund the indicated subsidy need of $250 million found in White House budget report to Congress for the fiscal year ending September 30, 2011. The announcement from NRMLA on the budget meeting with HUD was confusing at best. I hope HUD is and will be clarifying its position on the budget over the next few months.
As an aside, NRMLA was very close over 6 months ago when it estimated that principal limit factor reductions of 10% would result in a loss in HECM volume of around 20%.
Many of us expect brighter days for the reverse mortgage industry but those days may not come until proprietary products return. Right now hunker down, things will probably not be significantly better until sometime very late in 2011 (at the earliest).
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