A big part of that story can be found in applications per business day, which since April have been trending down compared to last year.

When comparing applications to endorsements (and ignoring the distortion from last September’s application rush ahead of PL reductions), we should expect a continued decline in endorsements year over year given the pattern of applications thus far.

Against this national trend lower, we continue to see some states and cities buck the trend:

• North Carolina continues to perform well, while New Jersey, New York and Texas are all up modestly year to date
• Among counties, Philadelphia, Nassau and Suffolk in NY, and San Diego and Orange in CA are all benefiting this year
• Philadelpia, San Antonio and San Diego are all up double digits among cities from last year

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:

We have another shoe dropping when it comes to analysis of these industry numbers given Wells Fargo’s 6/30 exit has yet to be baked in to any of the application or endorsement numbers we’ve seen yet, but we think the title of our post is appropriate given what the remaining lenders in our industry are experiencing.

Out of the 8 largest lenders not named BofA or Wells, just one declined in June. Looking at them collectively, these 8 lenders experienced a 37.9% increase in volumes from April to June, while the industry total declined -4.4% over that same period. Metlife appears at this point to be the biggest grower since the BofA exit, joining the 1,000 loan club this month for the first time.

Compared to the impact of HUD’s changes to the HECM program in October 2009, it’s very clear which had a larger impact on the industry. If anything, this highlights the importance of HUD’s pending news on financial assessment of borrowers and policy for T&I defaults.

Looking regionally, we saw improvement in all 10 regions tracked with Mid-Atlantic and Southwest seeing particularly strong growth from last month. From a year to date perspective, many areas continue to see growth:

• New York/New Jersey continues to ride the Q1 surge to show 15.9% growth from last year. Delaware and upstate New York have grown more than 25%, including both Albany and Buffalo.
• Great Plains, Southwest and Rocky Mountain are growing at double digit rates
• Midwest, New England and Northwest/Alaska are declining so far this year
• Detroit, Miami and Chicago have been the biggest decliners at the market level, all off by more than 25%

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.

A potential government shutdown has come and gone, and HUD still managed to post application volumes for March in a timely fashion! The application headline number is good news considering the 8.5% increase in applications, a second consecutive monthly increase.

Unfortunately, we don’t have to look far for negative impressions either. The increase was entirely due to more business days in March than February (24 vs. 21), so apps per business day actually declined 5.1%.

The outlook report also provides our monthly reading on HECM Saver endorsements, which were up 38.2% from February to 409, and represented more endorsements than refinance transactions (5.6% vs. 5.1%). Saver is continuing to grow at a steep rate after a slow start, and at this pace could be in double digits for market share later this year.

In looking to the Industry Trends pdf report linked at bottom, we can see that Pennsylvania stands out as the fastest growing among the top 10 states, up 27.2% vs. Jan-Feb 2010. There’s been a strong assist from Philadelphia, which has continued to grow since we profiled it last October.

In contrast with Baltimore, which is now declining fast as refinance activity dries up, Pennsylvania has always had a broad base to support industry growth: 5th largest number of senior homeowner households in the nation, and the lowest of the top 5 in penetration rate (% of these households with a reverse mortgage) as of December 2010.

Demographics isn’t always destiny, but it’s very useful to understand how our industry is tracking to its demographic potential. We put this type of demographic information alongside volume and loan size information together for easy reference in positioning your reverse mortgage business for success in our Market Opportunity Report. See a free sample on our website and subscribe today for quarterly updates.

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

One day our industry will find a ‘killer app’ for the reverse mortgage product that takes us from 2.24% market penetration (as of December 2010) to something much, much greater and a standard consideration in retirement planning.

But for this month, killer app meant just one thing when we saw the January application numbers: our industry is still struggling for volume. Before we get too gloomy it should be said that several clients have mentioned that February application volumes are surprisingly strong, but there is no doubt that January’s numbers took a step in the wrong direction.

January applications totaled just 7,396, down -10.6% from December but up 27.4% from a year ago. We’ve seen January applications decline each of the past 3 years as noted on the chart above.

Endorsements grew 6.8% from December to 6,904 (the highest total in a year) and were down just -1.7% from a year ago. We’re almost sure to see endorsement growth next month based on application trends recently, particularly as endorsement volumes really started falling off the cliff in March 2010 (-1,202 in March 2010 alone).

We also saw active lenders increase again in February at a slightly faster pace (9.9%) than endorsements.

In the market breakdown on pages 3-4, we noticed that a few of the hardest hit property markets are seeing HECM volume increases: Fresno +22.4%, Sacramento +8.5%, Tucson +14%. We’re not saying that all the bubble markets are back, as there are more markets still down like Miami (-50.1%) and Phoenix (-14.3%). All the same, it’s great to see some signs of life in these markets!

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

Ok, on to the report. Here are some highlights from the month:

• Total endorsement volume came in at 6,559 units, up 24% vs October, and just off the the recovery high set in August.
• Overall endorsement volume for 2010 is 66,194; this represents a 36% drop from 2009 levels, a relative improvement vs last month’s difference of 38%.
• The number of active lenders for the month increased by 14.  This small increase, coupled with the lowest number of new lenders entering the business, contributed to a sharp increase in the “Endorsements per Lender” metric shown on page 2.

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

October started the new federal fiscal year (and everyone else’s fourth quarter) with a whimper at just 5,279 endorsements, down -11.5% from September. That’s a bit disappointing given recent application volumes have been trending back upward.

It’s still early to draw major conclusions but check out the trend of applications vs. endorsements recently and you’ll see what has us starting to ask questions about cancellation rates and fallout.

We’ll just have to see how this develops over time, but just looking at the last two months (May-June applications) implied cancellation rates from endorsements (Sep-Oct) have increased from 29% to 42%. The first figure is roughly in line with historical experience but the second suggests we might be paying the piper for several months of very low cancellation rates earlier this year. Hopefully we get this behind us before year end!

This month’s regional drilldown shows the decline was very widespread, with only Southwest and Great Plains increasing from September. Declines were heaviest in the higher volume regions, with each of the top 3 falling faster than the overall industry.

Top lenders were a slightly better story, with 4 of the top 10 increasing volume, with 1st AAA and Bank of America gaining significantly (up 27% and 16%, respectively). The top 10 lenders as a group fared only slightly better than the industry, down -11.1% vs. -11.5% overall. Active lenders in the month was just over 600 and barely above the multi-year low set in May.

You can access the full report by clicking the image below. Enjoy!

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!

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.