Posts Tagged ‘HECM Applications’
It’s always more fun to report good news (since no one shoots the messenger in these cases!) and August continued a welcome trend higher in reverse mortgage business volumes. Endorsements were up 12.6% from July, again coming in ahead of increases in competition since the trough in May.
We also saw modest success in applications, coming in at 8,961 for the month of July. While that’s lower than June’s figure by 1.4%, there is a reason to be hopeful here. First, the updated chart with applications and endorsements (with timing adjusted 4 months for endorsements):
This first chart shows endorsement volumes following nicely along our application path, but the second chart shows a more optimistic trend in applications than the raw number suggests:
July had 2 fewer business days than June, which turns a -1.4% decline in the raw number to 8% growth in the per business day results. If we maintained the same pace in August (with 23 business days like June), then we would have been over 9,800 applications.
Lots of additional trend data and analysis is available in the full report by clicking the image below. Enjoy!
Since we already know that May’s volume levels rebounded a bit in June, it doesn’t feel quite so disheartening to show the headline graph from this month’s Reverse Mortgage Industry Trends report.
HECM Endorsement Trends by Year
Volumes for each month this year have been below 2009 thanks to startlingly low application counts, but now the task before us all is to improve on the 39% decline YTD. No one is expecting a 100,000 loan year anymore, but it’s shocking to realize that 80,000 would represent significant progress given what we’ve seen so far.
So where is the volume coming from next month and for the rest of the year? Last month we looked at HECM Purchase, which has been growing steadily (up almost70% last month vs. 2009), but started from nothing in late 2008 so we need more than just impressive growth figures (last eight months = 910 total loans). We continue to believe that the potential exists for 10,000 or more loans annually from this program, so we thought it would make sense to share that high level analysis with you here.
There are a few key steps in this quick analysis, and we’ll be the first to admit this is back of the envelope rather than something we can prove in our normal style from hard data. That being said, the numbers get interesting very quickly.
- There are 23.2 million senior homeowner households in the US as of 2008
- According to a 1991 study by the Real Estate Center at Texas A&M University, only 7.4 percent of seniors moved in a given year, which we’ve adjusted down to 6% due to their lower survey age
- Statistics range from 60-80% of seniors owning their homes outright, so we took the more conservative assumption that only 20% of seniors would use mortgage financing to purchase a home
That leaves some 280,000 seniors purchasing homes annually with mortgage financing, so HECM’s opportunity is to capture some portion of that. Whether you believe that HECM can capture 5% or 50%, we still have a large market to address. Of course, that also doesn’t consider seniors who otherwise would not be able to move or buy a house with traditional mortgage financing, but could through a HECM Purchase.
It’s not the only answer to today’s tough market conditions, but it certainly pencils as part of a larger solution.
Click on the image below to view the full Industry Trends report for this month.
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.
