We looked at endorsement volumes from October 2010 through March 2011 (the last 2 quarters where Wells, BofA and FF were fully represented) to see how much market share the three collectively had by state. Top 10 states by total volume and national total are in the table below, displaying endorsements and market share from the three exiting lenders.

The results were logical, but surprising for their size. With California continuing to have the most HECM volume, the fact that exiting lenders held almost 50% market share means a huge amount of volume is potentially available. Also among the top 10 states, NC and NJ were above 50% market share.

It’s a huge opportunity for the remaining lenders and one that hasn’t been lost as the aggressive push to hire loan officers from these companies has mostly abated. That’s certainly the most straight-forward strategy, but there is likely to be significant volume still up for grabs in several of these states for those that know where to look.

From an industry perspective, it also means we should expect some of these states (especially NC) to have volumes decline more due to these market share concentrations. The combination of restrictive regulations and large market share for departing lenders means big opportunity for lenders that can do business in NC, but also adds up to opportunity lost for consumers and the industry if there aren’t enough lenders available to serve that 62%.

If you’ll be in Boston for NRMLA’s Annual Convention, don’t miss the HECM by the Numbers panel. We’ll be speaking more on this topic and Purchase/Saver opportunities, currently scheduled for Monday, Oct 24 @ 1 pm.

Click on the image below to view the full HECM Trends report for this month.

HECM endorsements totaled 5,511 in July, down 5.9% from June and -6.6% from July 2010. And while the YTD total is still showing growth, many signs are pointing to a weak second half of the year.

First and foremost, the recent exits of Bank of America,Financial Freedom and Wells Fargo will all be impacting the last six months of this year (at minimum), although Wells Fargo endorsements are likely to continue until at least September or October given closing and insuring timelines.

But July also marked the first time in 4 months that we declined on a year over year basis, as shown in the chart below.

Given the long road to recovery from Oct 2009 principal limit reductions, it’s distressing to see how short and fragile the recovery back to growth mode was. The application declines (compared to last year) point to a continued downtrend for the immediate future, and we fully expect the absence of Wells Fargo in July applications and beyond to extend the trend.

The second graph compares the same year over year growth trends, but with endorsements lagged 4 months as per our usual application-funding-endorsement timeline assumption. If we assume a significantly negative reading in July applications, the industry’s near term future is uncomfortably clear.

All this adds up to a third consecutive calendar year decline as we’ve stated two weeks ago, as the four months of growth simply weren’t strong enough to offset what is likely to be eight months of decline for 2011 (Jan-Feb, Jul-Dec).

Housekeeping Notes:

• As of next month this report will be re-named “HECM Lenders” to better identify it as the ranking of HECM Lenders closing loans under their own FHA approval. Lender volume presented on this report includes third party originations (TPO) of any company not FHA approved under their approved sponsor lender.
• The Wholesale Leaders report will appear for the last time next week, and be known thereafter as “HECM Originators” to identify it as the best source of rankings of all companies originating HECM loans, regardless of FHA approval status
• Industry Trends will be re-named “HECM Trends” in keeping with the above changes

Click on the image below for this month’s report.

The chart above shows applications through May which appear to have held mostly steady since BofA stopped taking applications in February. Since then, applications were up 8.5% in March, and down -9.5% and -8.3% in April-May.

This second chart shows applications per business day, which make a clearer statement of decline once we recognize that March and May had 3 and 2 more business days than February, respectively. Of course, there are always many other variables changing in our industry at the same time that make it tough for precise comparisons, but the broad trend seems pretty clear. With BofA comprising 10-11% of retail market share in endorsements before their exit, a case could be made that the industry has lost more than half of that volume since their exit. Keep in mind that remaining lenders have still gained share of the industry since

Our last chart puts the BofA exit in context with Wells and Financial Freedom. We expect that June application numbers will show a boost given that Wells Fargo allowed loan officers to close out their pipelines and take applications through month end. Once that’s behind us, these three will collectively represent 30-35% of recent retail market share and whatever figure you use for the ultimate net loss to the industry after other lenders step in, that’s a hefty headwind for applications in the last six months of the year. Endorsements won’t really show the impact of Wells Fargo’s exit until Q4, but anyway you slice it 2011 looks to be an unlucky third year in a row of declines in HECM endorsements.

Housekeeping: Since the recent change in licensing requirements for HECM lenders, this report is now the most accurate way to understand retail/broker endorsement activity by originating company. Our Retail Leaders report includes TPO business for wholesale lenders as part of their retail volume, whereas it is correctly attributed to wholesale channel on this report. As part of this change, we will be renaming these two reports and making other slight modifications in the near future. Please let us know if you have a suggestion for new names for these reports.

Click the image below to access the full report:

May HECM endorsements came in at 5,188, down -15.3% from April but up 13.9% from last year. This is the second lowest level since December 2005, with only the recent trough of May 2010 registering a lower total. At this point the only question that seems fair is the same one we’re all asking of home prices: will there be a double dip?

Endorsement volumes are pointing downward again for the past two months, showing an eerie resemblance to the trend-line last year at this same time. We could draw a line through the dots and end up with nothing before Thanksgiving, which is downright scary.

That said, we need to look at application volumes (HECM case numbers issued to be specific) to really see whether our market is going to zero like a bad dotcom bubble stock.

The trend here is much more encouraging, although not without its challenges. We’ve been averaging just over 7,000 since October, but April’s total of 7,371 was the lowest over that 7 month period. Two key questions arise here, which we can deal with in turn.

Question 1: What does the application trend look like if we remove seasonal factors? We look at the application per business day trend year over year for this analysis, as it removes differences in business days and usually holidays (Easter is an exception falling in March and April, but was in April both this year and last).

The chart makes it more clear that much of the April decline in applications was due to fewer business days compared to March (21 vs. 24), although it also illustrates that we saw our first year over year decline in applications in the last 7 months. So while it’s probably safe to say we’re not going to fall off the bottom of the graph (at least this year), it does signal business plateauing at a low level, probably due at least in part to the exit of Bank of America and Financial Freedom.

The two lenders together were probably doing roughly 1,000 applications per month before exiting, so if we assume half of that volume has been picked up by other lenders it would mean slight growth year over year on this chart instead of the decline.

Question 2: What can applications tell us about the next few months for endorsements? We’ll go back to a modified version of the application/endorsements chart above, with endorsements lagged by 4 months to better align the two datasets.

The endorsement decline looks just as shocking here, but the blue line for applications shows it’s in the context of a much smaller decline in applications. We can also see that the pullthrough rate for applications in Oct-Nov was unusually high at 84% and 89%, respectively. We had previously chalked that up to spillover from September applications (where pullthrough was expectedly low at 48%), but the decline this month has us rethinking that.

In any event, we usually expect pullthrough to come in at 75-80% over the course of a few months based on historical experience, and May endorsements equate to 70% of Jan apps. It seems more likely that we’ll come back a bit given that applications were up in Feb-Mar and pullthrough may bounce back also.

So while the headline endorsement number is staggering and certainly tempers enthusiasm for the second half of the year, we’ll be paying more attention to the applications per business day and pullthrough trends to make sure these are one-time events and not the start of a negative trend.

A bit of housekeeping: As HUD changes their data reporting in the wake of broker licensing changes, please note that brokers not closing loans in their own name are rolling off the active lender list over the next few months. As such, we will not be emphasizing active lender counts and changes until this stabilizes, likely toward year end. After that transition is complete, Retail Leaders will reflect the number of lenders closing HECMs in their own name.  For a report including brokered loan activity attributed to the broker, please see our Wholesale Leaders reports.

Click on the image below for this month’s report.

• Broker/Wholesale endorsements for January came in at 2,413 units, up 9.3% from December but down 45.8% from a year ago
• Retail endorsements totaled 4,049 units, down 6.8% from last month but up 27.7% from last year
• Brokers contributed 37.3% of all units, up from 33.7% last month but down from 58.4% a year ago

The divergence between channels is particularly striking this month because Retail was entirely responsible for the industry decline. It’s way too early to attribute the weakness to BofA’s exit (we won’t see that effect until at least March or more likely April endorsements, so we can probably expect some bounce-back from Retail in February results if our client conversations are any indication.

Indeed, BofA has had its two best endorsement months since February 2010 as the chart below illustrates.

What’s most interesting is that broker/wholesale business has grown very little from the lowest levels in last years for BofA, while retail has recovered with the rest of industry. We’ve heard from several people in the industry that this directly related to the decision not to pursue certain types of broker/wholesale business, and whatever the cause the effect has been clear on this chart.

There was a wide divergence among other top 10 lenders in January, as Genworth and Urban both saw strong recoveries from what now look like hiccups in December, while Financial Freedom had the most notable decline to a multi-year low.

Click the image below to access the full report:

As we suspected in last month’s report, we did indeed see retail units surpass wholesale units in May, with 54% of volume coming from retail/direct originations. Given that the downtrend the past 6 months has unambiguously hurt broker/wholesale volume more than retail, we’ll be looking closely to see if the increased volume in June (and hopefully the next few months as well) continues to favor retail or swings back in favor of brokers.

So where are lenders placing their bets? One way to look at it is with the fastest growing lenders in both retail and wholesale:

• Of the 5 fastest growing retail lenders, only one (Metlife) also has wholesale business, although they do happen to be the number 1 wholesaler
• Of the 5 fastest growing wholesale lenders, all five have retail originations as well, although none has more than 23% of business from retail
• Also of note, 2 of the largest wholesale lenders with the longest track record in the space, Bank of America and Financial Freedom, are flat and down -60% respectively in wholesale volume

In many ways today’s report illustrates what has long been considered a truism in the mortgage industry: wholesale is much faster to grow, but retail is where companies create lasting franchise value. We’re all in favor of a healthy industry with both retail and wholesale channels, but the trends right now are increasingly showing strain in the broker/wholesale side of the industry.

Be sure to click the link below to access the full report:

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.

Despite continuing (and maybe growing) advantages for large financial institutions during the year, we’ve seen broker/wholesale reverse mortgage loan volume outpace direct lender “retail” activity in all but 1 month (March). Sure, broker/wholesale volume started the year with an advantage here given that it comprised 55% of 2008 loans, but 2009 remains a very respectable showing regardless.

The disparity introduced by the early availability of fixed rate product through broker channels is at least partially responsible, but perhaps the demise of brokers has been oversold? Time will tell (and we’ll keep you posted through these reports), but at least in the first round of our new world financial order, the brokers have survived to see another year.

A few other highlights from the full report:

• Broker/wholesale volume comprised 52.7% of all 2009 loans, down from 55.1% in 2008
• All four of the largest wholesale lenders in 2008 (Financial Freedom, JB Nutter, Bank of America and World Alliance Financial) saw broker volumes decline in 2009, as the industry broadened to include both more wholesale lenders and a more even distribution of volume amongst them
• Notable wholesale winners in 2009 include:
  • Metlife – up 156% to finish a close 2nd for the year to longtime leader Financial Freedom
  • Generation – up 209% to finish 5th
  • Genworth – up 242% to finish 6th
  • Urban Financial – up 170% to finish 7th
• It’s a testament to just how large a lead Financial Freedom’s wholesale business enjoyed to see them still come in number 1 after 2 consecutive years of over 40% declines in volume.

Click the image below for the full report.

Wholesale volume dropped almost 17% from October, to 3,901 endorsements. This brings the YTD wholesale volume to 54,609 units, a 6.4% decline from 2008 levels, but we’ll still end the year with the second highest wholesale volume on record. Unfortunately, if the current application trends continue into 2010, there is a decent chance that wholesale volume could slip back to the levels of 2006 (which would mean wholesale volume around 40,000 units). Of course this is not something we all want to hear, but if you are not at least considering this possibility in your plans for 2010 and ready to take the appropriate actions, you may be in for a surprise, and not the pleasant kind.

As a wholesale lender, one way to buffer the potential drop in volume in the next year is to focus on your existing customers and do what you can to win more of their business. If you look at the table at the bottom of page 2, Wells Fargo is currently doing the best job of that (currently capturing 40% of their brokers’ volume), followed by Financial Freedom and Bank of America at 35%. Of course, that only tells part of the story, and the volume Wells does on the wholesale side should indicate that most of their clients are in the smaller volume group – Metlife, Bank of America, and Generation all have fewer customers with a lower capture rate, but do far larger amounts of volume in the wholesale market.

As a vendor to the reverse mortgage industry, the challenges and the opportunities are very similar to those the wholesale lenders face. Understanding which lenders you are missing out on and where they are doing business are both key to growing your market share. If a decline in volume is in the cards, the only way to keep above water is to win more business, both from your current customers as well as those you are completely missing. We have tools available to help you do just that – don’t hesitate to contact us if you want to learn more.

Click here or on the graphic below for this month’s report.

Speaking of fixed rate loans, they accounted for 69% of the wholesale market in October..

Click for larger image

We’ve been hearing some noise lately about the squeeze being put on the smaller brokers out there, as large lenders hire more LO’s and move away from wholesale. While this may be happening, it hasn’t really shown up in the volume numbers as of yet. The chart below shows the business mix between Retail and Wholesale since the year 2000, and the spread is just barely beginning to trend back in the favor of the large retail institutions.

Click for larger image

These two trends are likely related since many of the large retail institutions delayed their rollout of the fixed rate product, leading to a broker product advantage for several months this year, but still very interesting to look at from this long term perspective.

Have a safe and happy holiday season! (click the image below for the full Wholesale Report).