Archive for the ‘ReverseIQ’ Category
We started getting word in mid February that application activity was picking up a bit after what we knew were several very depressed months following the October 1st principal limit reductions. February’s numbers did indeed show a slight bump in app volumes on the heels of a new low in January, and March has continued the trend as you can see in the updated chart below (click for larger chart).
March applications came in at 7,398, up 11.4% from February. Although this is still less than half of March 2009 volume, it’s important to remember that we’re just now hitting the one year anniversary of the 625K lending limit increase that drove a mini spike in applications as we’ve highlighted on the chart above. It’s hard to believe just a year ago we were seeing dramatically positive volume boosts coming from HUD program changes, especially as we’re staring down another principal limit reduction later this year.
It’s also important to note that there are 35% fewer originators in March 2010 vs. 2009, so the impact of a 54% decline in application volumes on average applications per lender is muted down to a still scary but more manageable 29% average decline for the survivors.
We’re very interested to see what April applications bring given the pricing changes and anecdotal stories of a resulting 30-50% increases in volume over March. A 50% increase would put the industry just about back to our typical monthly volume prior to the principal limit reductions, although we would expect fewer originators and therefore a healthier posture for surviving lenders.
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.
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.
