If there’s one thing we were hoping to see these last few months, it’s an increase in application volumes back to something approaching ‘normal’. While the absolute level in February is nothing to cheer, the uptick from January’s depressed levels made quite a few of us happier than should be allowed for such a low number.
Without further ado, here’s an update to the chart that our readers have come to expect:
As is obvious from the chart, we’re still in scary territory when it comes to application volumes. The industry is effectively bumping along the bottom still after the October reduction in HECM principal limits, although it’s certainly better to be on the uptrend again instead of making new lows as we did in January.
That said, the most important question remains: Where do we go from here? With the recent announcements of $0 servicing fees by lenders (Genworth and Security One) and Pentagon Federal/Sunwest and Metlife going even farther by eliminating both servicing and origination fees, perhaps product driven competitive innovation can apply the needed boost. We’ll have to wait until mid-May to see solid numbers about April apps that will tell us how far these innovations will get us.
In the meantime, we mean it in the best possible way when we say: go find your Baltimore.
Ever wonder which city or cities you should be marketing in? This is generally one of the first questions we get asked by new lender clients when they look at our reports and start glazing over at the reams of information we put out. Not that we blame them, our primary sin is probably putting out more information than our clients usually know what to do with, which tells us that we need to do a better job of boiling things down.
In that spirit, take a look at this month’s Industry Trends report, which is very clear in highlighting a particular location where the industry has seen much better activity than the national picture suggests. This is partly due to this being January and therefore only looking at a one month period (year to date), and partly because the contrast in regions around the country has never been stronger – particularly once you get below the HUD field office level.
If you look at the set of 4 tables on page 1, you might notice that Maryland is consistently the best performer among states.
Then you’ll notice that the city and county of Baltimore are performing very well.
And lastly, you might notice that the top 3 (and 4 of the top 10)highest volume zip codes are all in Maryland. Can it be? Yep, they’re all in Baltimore too.
We scratched our head for a bit and talked to a few of our friends in the local area to see if anything stood out about Baltimore that might indicate why HECMs have done so well there lately. After running through the data a few different ways, we noticed something interesting. Take a look:
The number of active lenders has actually been decreasing in Baltimore over the past year, but the level of HECM volume was going up as lenders were getting out of the business. This suggested that either all the active lenders were doing well or that just a few lenders were really increasing their volume. If it was an across the board increase for lenders in Baltimore that might suggest that something was really changing in the city – a market driven change.
It turns out that the volume growth was driven by just a few lenders. Take a look at a chart of the top 3 lenders in Baltimore for the same time period:
All 3 lenders saw big increases in January, but particularly Net Equity Financial and Cooper and Shein. Of course, we can’t say how much each of these lenders were spending on marketing, what type of marketing or where they were sending it. With those caveats however, it’s very interesting to note that all 3 of these lenders are very focused on Maryland:
- Cooper and Shein LLC: 57 of 65 HECMs in 2010 in MD
- Net Equity Financial Inc: 50 of 88
- Savings First Mortgage LLC: 27 of 47
This is just one city and a short time period, but it’s worth asking a few questions:
- Is there something unique about the marketing or sales activities of these companies that drove this growth?
- Is there something unique about the lenders themselves? Is it because they’re local or do they simply have a small handful of hyper productive salespeople?
- Did these lenders simply spend their way to volume in this market without regard to their return on investment? If so, was it simply coincidence that they all did so in Baltimore at this time?
It’s likely that the truth is a mix of these factors, but generally we see successful small companies in our industry with a particular advantage in one of these three general areas. The good news is that at this point in the lifecycle of our industry, we’re still immature enough that simply being world class in one of these three areas can lead to strong performance, although typically only in a concentrated geography as we’ve seen here. To reach “scale” at a regional or national level involves a whole new set of challenges.
The future of the industry will depend on whether growth comes from a large number of local specialists (“let 1,000 flowers bloom”) or a handful of large national institutions. We’ve seen both work and would argue that there’s plenty of room for success in both models given our industry’s current 2% penetration rate, but the key is that you know which one you’re trying to be. In this case, splitting the difference is a road to ruin.
Give us a call if you’d like to talk more about where your opportunities are in reverse.
Sidebar:
If this type of analysis really turns you on and you’d like to interview with a LARGE organization that does this everyday, check out the two links below:
http://jobview.usajobs.gov/GetJob.aspx?JobID=86632485&aid=83965014-8310&WT.mc_n=125
http://jobview.usajobs.gov/GetJob.aspx?JobID=86609720&aid=83965014-8310&WT.mc_n=125
End of Sidebar
Click the image below for this month’s Industry Trends report.
Our first report of the new year and we have a new top wholesale lender to report. After an extended run of growth in the wholesale business assisted in no small part to being early in the fixed rate product, Metlife has risen to take the top volume spot among wholesale lenders. Bank of America also climbed into the number 2 spot, with longtime leader Financial Freedom slipping to 3rd. JB Nutter and Generation remained at numbers 4 and 5, respectively. Congrats to Mike Mooney and team! (full disclosure, they reinvested part of their earnings from growing the business in an add on the top lender ranking page in this report, but we promise it didn’t influence their rankings at all…)
For those keeping score, we continue to see a counter-intuitive theme in the marketplace as volume declines seem to be hurting the direct lenders (“Retail”) more than brokers so far. Direct lending (“Retail”) volumes were down almost 20% from December, compared with a 2.9% increase in broker business through wholesale lenders. We don’t expect brokers to swim against the tide of overall industry volume declines for long, but we’ll continue to watch these numbers as a quick indicator of the relative health of these business channels.
Of course, we’re dealing with endorsements here so there’s a possibility it could mean that broker loans are slower to get endorsed and the decline might show up later.
We’re excited to report that we’ll soon be able to look at additional data to answer questions like this, as we now have 3 of the top 5 lenders participating in the industry data repository. This puts our estimated coverage of reverse mortgage industry loans at over 40%, and we will start publishing reports talking about apps and fundings (instead of endorsements) once we have at least 5 of the top 10 and 50% coverage. If you’re interested in finding out how you can participate and what this means for the industry, check out our status page or contact us directly for more information.
A few other highlights from the full report:
- Among the top 10 lenders, only 1 active company (excluding World Alliance, which is in runoff mode) had a volume increase from December: Generation Mortgage, which more than doubled. Much of this appears linked to a large increase in fixed rate volumes, but obviously Sherry and the team have been doing something right to see such a dramatic increase.
- In case you’re wondering if the call center model works, One Reverse Mortgage continues to prove there are enough seniors comfortable completing a reverse transaction without a loan officer at the kitchen table to exclusively power a top 10 ranking. They grew their retail volume faster than all others (including Metlife and Bank of America) in the past 12 months, showing that there’s more than one definition of “distribution” for all of us to consider.
Click the image below for the full report.
