Archive for the ‘ReverseIQ’ Category
In last week’s report, we talked about how younger borrowers (read: Baby Boomers) are changing the face of the reverse mortgage industry by selecting reverse mortgages in greater numbers than their elders. Today, let’s dive a little deeper into reverse mortgage borrower dynamics.
One of the first questions that arises when looking at the age distribution chart from last week’s report is whether there was any difference between genders from an age perspective. As you can see from the chart below, single males are much more highly represented in younger ages than single females, with couples even further skewed to the young side.
In many ways this makes perfect sense given the shorter life expectancy for males, which naturally leads to fewer couples (assuming these are mostly married couples) and males at older ages. There are simply more single females that survive to higher ages as potential borrowers.
What’s perhaps less intuitive is that fixed rate borrowers are skewed younger as well, clearly evidenced in the chart below.
Perhaps younger borrowers are less daunted by the full draw requirement of a fixed rate loan because they’re more likely to be using proceeds to payoff an existing forward mortgage? As we start considering how potential usage of funds impacts borrower age, it makes sense to consider payment plan types, as in the chart below.
Since Line of Credit (LoC) is the payment plan option selected by a vast majority of borrowers and is currently mandatory on Fixed HECMs due to full draw requirements, we’ve narrowed our focus to just the HECM ARM population and chopped off the top 60% of the chart to see the change more clearly.
Under 8% of HECM ARM borrowers in their 60s select one of the four monthly payment options (excluding LoC), whereas 32% of those over 100 select a monthly payment option. Given the greater tenure payments available to older borrowers this would seem more attractive to older borrowers, but the level of change surprised us.
So what does all this mean? We suspect that many will see product development opportunities and others likely see sales and marketing implications. We’re as interested as everyone else to see what this means for our market, but the resounding bottom line remains that the reverse mortgage market is in great need of market segmentation and diversity in our approaches to growing the business.
We’d love to hear your thoughts in the comments below, or use our contact form to email us privately.
We just got back from the NRMLA Irvine Roadshow and as always, heard some very interesting ideas and discussions about the industry’s current opportunities and challenges. One of the most interesting points we heard came from John Nixon at Bank of America, discussing an analysis he had done of borrower age.
Many of us who have been in the industry for a while have watched average age drop from 77 a decade ago, to 74 five years ago and roughly 72 last year. What has been masked by that “average” (or mean for the mathematically precise amongst us) is that the number of borrowers at each age has changed dramatically. John mentioned that in the past few months, 62 year olds were the most common among his borrowers, which frankly shocked many folks in the audience.
We did an analysis of our own once we got back to our office and what we found suggests that Nixon’s comment is indicative of the industry as a whole rather than just at BofA, even if the industry’s peak age was 63 in 2009 rather than Nixon’s 62. (To be fair, John may be looking at loans we won’t see for a few months due to the timelines associated with loan endorsement.) The chart below show the percentage of borrowers (youngest borrower) in each year at each age.
As you can see, there has indeed been a dramatic shift toward younger borrowers in the past few years, and particularly in the most recent year. Whereas in 2000 there were more borrowers age 76 than any other age, that figure has shifted downward much more dramatically than the average age: 74 in 2003 and 71 in 2006 to 63 in 2009.
So what does this mean for the industry? Well, it suggests that a common refrain of baby boomers being much more likely to use reverse mortgages than the WWII generation and those before is coming true. At the very least, baby boomers seem to be less put off by recent changes to the product and industry that have dropped overall industry volume by -39% in the first six months of 2010.
This could be from higher expectations of living standards in the baby boomer generation, lower retirement savings preparation (and lower pension availability) or a greater receptivity to debt. We simply don’t know from the data we’re analyzing today.
But it did bring up some other interesting thoughts about fixed vs. ARM HECMs, payment plan types, and borrower gender that we’ll explore further in next week’s edition. In the meantime, let us know what you think this shift in borrower age might mean for the industry in comments below, or email us here.
For part 2 of this analysis, please click here: Reverse Mortgage Borrower Analysis, Part 2.
May’s application numbers have good news and bad news for the reverse mortgage industry.
The good news: apps grew for the fourth straight month since reaching a low of 5,805 in January, now up 37% since then to 8,363 in May.
The bad news: lower upfront costs are likely fully baked in to these numbers by now, and we’re still nowhere close to the typical volumes we saw before the 10/1/09 principal limit reductions.
Applications overall continued to rise above the levels seen immediately after the principal limit reductions (red line) but well below the levels before (green line). Apps increased 2.4% on a gross basis vs. April.
Adjusted for the number of working days in each month the chart is slightly more favorable, showing a 7.2% increase vs. April after we account for one less working day in May.
We were recently asked by another industry veteran whom we respect a lot whether we thought endorsements have seen a bottom yet. It’s a good question, and we thought it would make an interesting quick little visual for you as it highlights another question of interest.
When comparing applications to endorsements, it helps to consider the timeline from one to the other. We generally use 4 months (basically allowing 2 months each for closing and insuring), which becomes clear on the charts. First, without a timelag:
There’s clearly a pattern, but introducing the timelag makes it much clearer:
As you might suspect from the chart, we do think that endorsements have probably bottomed given that May endorsements came in low 4 months after January’s application trough. One hint we could be in for a further decline is that the implied pullthrough rate of 78% for January apps to May endorsements is high compared to recent readings in the high 60′s, but we’re probably not going to see too much decline given the respectable bounce in February applications.
The other point that’s interesting here though is that the October spike in applications doesn’t appear to have produced any real corresponding spike in endorsements since. Granted, February and March endorsements were too high to be entirely attributed to October and November applications, respectively, but we haven’t seen a single monthly increase in endorsements since December.
We’d be very interested to hear your feedback on this point, but from this view it seems disturbingly obvious that applications taken in a rush ahead of program changes collectively showed some of the lowest quality pullthrough the industry has seen in years.
All the more reason to lend your support to the efforts at NRMLA and CFIS to find alternatives to another principal limit reduction.
