We’re getting closer and closer to the final reports of 2011, so we’ll preface next month’s numbers by showing one of the biggest trends of the past 3 years: Lender consolidation.
One of the questions we hear a lot is whether having more lenders is good or bad for the industry. Of course, most people dodge by saying that more of the right type of lenders is a good thing, which is much easier to agree with.
We can’t prove that more or fewer lenders is the better way to go, but one thing is becoming evident over time. Whichever comes first, lower active lender totals march in lock-step with lower loan volumes.
It’s no secret that endorsements have been lower the past few years, nor that there are fewer lenders actively originating HECMs. What’s striking about the chart is just how correlated the two trends have been. The endorsements figures are easy enough to find (any of our 3 monthly reports). You can find the active lenders count including TPO (red line in chart) in the top left box on page 2 of HECM Trends each month, and the FHA approved HECM lenders (blue line) in our HECM Lenders reports.
It’s also worth pointing out that as FHA switched from approved brokers to TPOs approved by lenders (gap between red and blue lines on chart), HECM volumes stayed in line with the red line that includes TPOs. This would suggest that the active originators metric including TPOs is more representative of the health of the industry.
Click on the image below to view the full HECM Trends report for this month.
It’s been a while since we wrote about a hot HECM market bucking the national downtrend, but this month we have a very interesting one for you. As you might have guessed by the title of this report, we’re talking about Saint George, Utah. The city has more than doubled total Max Claim dollars year to date, and at 100 loans with two more months to go is on track to easily surpass its prior loans record of 104, set in 2007.
We’ve previously written about Baltimore, New Orleans, Philadelphia, and North Carolina, but as the housing bust has progressed there have been fewer growth stories to find. Saint George caught our eye as it rose to the top of our listing of cities by MCA growth on page 2 (bottom), finally taking the crown from Philadelphia.
Our first guess was that this might be another refinance driven surge as we saw in Baltimore and Philadelphia, but there hasn’t been a single HECM to HECM refinance yet in 2011 for the city. That of course got us even more curious, so we started looking at lenders – and hit the jackpot.
Cherry Creek Mortgage has created substantial business in Saint George as a new industry participant, in a place where the rest of the industry put together is essentially following the national volume trend. There are lots of ways to interpret the company’s success, and we won’t pretend to know their secret sauce. But we’ll hazard a couple of thoughts:
- Small, under-penetrated industries like ours still have niche opportunities that have not been fully understood nor harnessed by existing competitors
- Single companies with an innovative approach to the customer, product and/or market can change the shape of the industry in a city, state or even nationally
- Our industry is well served by new competitors that thoughtfully pursue new strategies
Congrats to Dan and the rest of the team on an amazing success story.
Click on the image below to view the full HECM Trends report for this month.
We’ve been asked many times where was the best place for a reverse mortgage company/consultant to spend precious marketing dollars. While we can’t claim to have solved that question (if we could answer that question we’d have retired already), we do see some things that work at the industry level that benefit our clients.
Whenever we hear this question, it reminds us of the boxing term for a fighter that does better than their weight-class suggests they should. So we went looking for places where our clients might do better than they might otherwise expect with their marketing budget.
Big City, Big Volume?
Looking at our top 10 list of cities by loan volume, you might think that these cities are here simply because they have the most senior homeowner households. It’s a good theory, so we tested it. The table below shows these same 10 cities with their senior homeowner household totals and the rank updated to reflect households rather than loan volume:
Most of the top 10 cities are in here, but they’re not in order and there are some true outliers here as well. If we think about loan volume similar to a response rate on a marketing campaign, we can calculate an adoption rate by looking at what percentage of eligible households completed a reverse mortgage. In this table we’ve shown it in basis points (percentage multiplied times 100) and annualized it. The “New Adoption” simply removes refinances from the equation to see just new reverse mortgage borrowers.
On this basis the differences are stark, as Baltimore is generating over four times as many loans per household as Chicago. So it would seem that huge numbers of seniors are important (mostly top 10 cities here) but not the end of our story.
Past Performance = Future Results?
One of the other metrics we like a lot is penetration rate, which shows what percentage of eligible households have a reverse mortgage at any point in time. We noticed while looking at this table that all of these top 10 cities had penetration rates (as of December 2010) higher than the national average of 2.24%. Our industry had done a good job focusing on the cities with the most eligible households, and seen success doing so, but what does that tell us about the future?
Washington DC and Baltimore both have high penetration rates and saw very high adoption rates (good for our hypothesis), but Miami had relatively little volume in Q1 (as measured by adoption rate) despite having a high penetration. Given how many cities there are, we thought it best to do a correlation analysis rather than continue our eyeball test, and discovered that higher penetration in Q4-2010 was strongly correlated (above 0.5 for you statistical types) with adoption rates in Q1-2011.
In other words, all other things being equal your marketing dollars are more likely to result in loans where the product has already done well.
Conclusion
We’d be the last ones to tell you that correlation equals causation, but it makes sense given high customer satisfaction ratings that our product does better in areas where potential borrowers already know friends or family in their local area with good experiences. If you’re looking for a way to test out this idea, feel free to use the tables in page 2 of this month’s report (click the image below) to tune your marketing to areas with higher penetration rates.
And if you’d like to see what penetration rates are for every county in your state (or states), it’s in our Market Opportunity Report for clients. Many clients use it do their marketing analysis every quarter, and if you’re shy about numbers we’d be happy to lend a hand with the statistical heavy lifting.
Click on the image below to view the full Industry Trends report for this month.
