Posts Tagged ‘HECM refinance’
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.
If you want to see a telling visual of our industry’s pain, check out page 1 of this month’s report. The first graph showing year over year endorsement trends shows just how tough the road has been recently for reverse mortgage professionals from a volume perspective, with a huge gap opening up between the blue line representing 2009 and 2010′s sickly purple line. (To make it easier for all to see, we are referencing the graph below:)
It certainly doesn’t help the comparison that we had a nice rise in March 2009 resulting from the $625K lending limit increase. We’ve been talking recently about the encouraging uptick in application volumes, but that will take at least another month or two to show up here due to endorsement lag times.
So now that we have the bad news out of the way, let’s talk about some bright spots. In keeping with the increased lending limits mentioned above and our recent analysis of refinance volumes, you might be surprised to find out just how effective the lending limit increases still are at affecting the dollar volumes of different markets and lenders around the country – even one year after our last lending limit increase.
Baltimore is a great example of refinance success in a market by enterprising lenders, and this month’s report shows another good opportunity in growing markets. To highlight, let’s look at the MCA Growth Table at bottom of page 2:
Every city on this list has seen significant increases in dollar volumes that drive revenue and profit for lenders (and put dollars in senior borrowers’ pockets), with many doubling compared to last year. Since we’re showing you the result of lenders’ collective efforts in these areas it goes without saying that you won’t be the first to discover these growth opportunities, but the scale of these markets suggest that there could easily be more potential here than is currently being tapped.
We’ve consistently noticed that despite the large numbers of active lenders in big markets, many metro areas still look relatively under-served compared to rural communities when we look at senior households per active lender on our Market Opportunity Report, but it also is evident on this report in a more bottom line measure: average loans per lender. Check out the table below for a quick look:
It’s worth pointing out that Brooklyn shows up at the top of the MCA chart and here as well, but notice that Chicago has both the most active lenders and second highest loans per lender average. Sure, it’s hard to make a living just originating three loans a month in Chicago if that’s all you’re doing, but remember that’s the average – there are a lot of lenders doing much more than that in just that one market. Same goes for the other cities listed here, which have more active lenders than every other city but still show decent volumes per lender.
For those inclined to be pessimistic we freely admit that there are also a lot of lenders that do less than average in each of these cities, just as there isn’t a silver lining without a dark cloud. In the meantime, our optimistic clients can keep thinking about how lower upfront costs can reach a whole new customer base that doesn’t want every last dollar in their hands today.
If there’s any truth to the long touted statistic that 4 out of 5 senior homeowners don’t have a mortgage (and we think there is), then it stands to reason that lenders offering an efficient means of making that equity available for future emergencies at little cost today breaks new ground for where this industry can go from here.
Click on the image below to view the full report for this month.
As we saw last month, the downtrend in application numbers is finally starting to significantly impact endorsement numbers. That trend has continued in April, with overall industry numbers down to 5,511 units, dropping 5.3% from March.
Thankfully (if you’re among the survivors), there was an even greater decline in active lenders (down 7%) that translates to an almost imperceptible uptick in average loans per lender. It’s nothing to write home about, but at least it’s helping keep some heads above the water.
- Several regions saw modest volume increases in April, including the Mid Atlantic region that includes Baltimore. If you missed our prior newsletters about what’s occurring in the Orioles’ city and what might be driving the numbers, check out our prior pieces here and here)
- Midwest and Great Plains also showed strength, but their relatively low volumes couldn’t make up for significant declines in Pacific/Hawaii and NY/NJ
- Pacific/Hawaii in particular is struggling, as volume has dropped 44% since December
- Of all 82 metros we track, just 2 show positive volume growth year to date vs. last year: Houston and New Orleans. We’ve talked about the relative strength in Texas before, and perhaps New Orleans is simply doing its best to welcome all of us to town for NRMLA’s annual convention later this year…
The story is similarly stark (and no that’s not an Iron Man 2 reference, even though we are excited to see the movie next week) among lenders, as you might expect given the broad industry decline in recent months. On a year to date basis, only 2 of the top 10 lenders show positive volume growth:
- Urban Financial (recently purchased by Knight Capital) saw retail volume grow 48%, perhaps benefiting from relative strength in the Midwest where they’re based, despite their top volume state continuing to be Florida
- Genworth is seeing positive trends in their retail business, up 41% vs. 2009
The full report is available by clicking the image below. Enjoy!
