ReverseIQ Newsletters

Retail Leaders – September 2009

Sometimes it seems that the more things change, the more things stay the same.  Despite tremendous changes underneath the surface this year (lending limits increased, HECM for purchase authorized, principal limit reductions, etc.) the top line in the reverse mortgage business is in a dead heat with last year’s results.  As of September, 2009 volume of 87,130 is just 0.4% lower (393 loans) than 2008 at the same point.  For those of you keeping score, the next three months need to be as good or better than September to avoid showing a negative growth rate for the year.

Of course, for those of you that just can’t adjust from the federal fiscal year to our unorthodox calendar year approach, your year is already over and we finished up 2.3% from fiscal 2008.

A few highlights of the report this month:

• Volume in September was up 6% from August, in lock step with last year’s similar increase in the same months.  For a good sense of seasonality (or lack thereof) in the reverse mortgage business, check out the Endorsement Volume chart toward the middle of page 2.
• Endorsements per lender improved after falling off a cliff last month but remains below all other months in 2009.  Good news is that both Active Lenders and New Lenders ticked down, with New Lenders continuing its downtrend since peaking in March 2008.  We haven’t seen a meaningful increase in Active Lenders (by month) since early 2008, so the declining level of New Lenders should eventually stop replacing the companies exiting the business and start declining on an overall basis.  Remember, 1/2 of the new lenders exit the business within 6 months of their first loan.
• Industry concentration increased in September for the first time since April, as the top 10 lenders collectively originated 40% of all loans last month
• Security One and OmniHome are combined in the report and jump back into the top 10 on the strength of that combination, coming in at 9th for the trailing twelve months

Click the report for full details.

Wholesale Leaders – July 2009

Our Wholesale Leaders report is now available for July, 2009. Wholesale made up 5,392 of the 9,828 units done in July, bringing the YTD number to 35,204. Financial Freedom remains the top wholesale lender for the trailing twelve months, but it’s close. MetLife continues its short-term run, however, and has held on to the top spot for the last two months.

The following tables show how different the landscape looks on a current month vs. trailing twelve month basis. Metlife has certainly seen quite a bit of lift from being the first to offer the 5.56% fixed rate loan, and WAF was right behind with their 5.63% offering. Given the commodity nature of this business, we have seen others begin offering the same rates lately, so it’ll certainly make for more changes in these lists going forward.

Top 10 – Trailing Twelve Months

Top 10 – Month of July, 2009

If nothing else, the stark difference between these two lists should point out that you really should be looking at the most timely information possible to run your wholesale business.  We humbly suggest our Wholesale Analytics Reporting service is the tool you’re seeking.

Continuing Trends

Other top gaining Wholesale Leaders include Generation Mortgage, Urban Financial and Genworth Financial, all more than tripling their Wholesale volume over the past year.  The turmoil in the Wholesale side of the business has been much commented all around our industry, but these numbers certainly drive home the changing realities as opportunitistic competitors pick up business while some of the historical leaders struggle.

Check the report below for more details and don’t be afraid to drop us a line if you’d like to compare notes on what this might mean for your business.

UPDATE – $798 Million Subsidy Request

After a great deal of interest around the industry from our recent post on HUD’s FY2010 subsidy request for the HECM program, some friends in the industry have been kind enough to help clarify some questions we raised in the original post.

In the original piece we offered several possible perspectives for understanding the size of the request relative to the HECM program, a way to back into HUD’s estimates as to how much the program costs relative to the MIP premiums that we see everyday.

• The first point to clear up is that the budget request is not applicable to cash claims to be paid in FY2010 due to prior year loans terminating.  It’s a projection of current cash needed to fund the present value of future losses from loans above and beyond MIP.

• That underlines some of the thoughts in the ‘insurance’ section of the original piece, and we’ll specifically focus on our second bullet point there – the subsidy request is in fact for expected performance of just FY2010 HECMs under the new assumptions.  This means HUD is telling us that on top of the 200 initial MIP and additional 100-250 monthly MIP accrued over the life of the average loan (depending on draw and interest assumptions), they’re expecting an additional 266 basis points of claims in present value terms ($798 million divided by $30 billion total endorsed).  That suggests the current MIP premiums, which already represent one of the two largest costs of the program to borrowers, would have to rise 60-90% to fully offset expected claims if nothing else changes.

As the world stands today it seems we have four options at this point, any combination of which might form the best answer:

• Ongoing subsidy requests by HUD to fund claims in excess of premiums – relying on continuing political favor each year, indefinitely
• Increasing MIP – already one of the largest and most visible program costs to consumers and we’re not hearing many originators saying there’s a lot of room to raise from a consumer acceptance perspective
• Reducing LTVs – as much as the higher loan limits have helped the industry recently, lowered LTVs have the potential to substantially reduce the appeal of the product, although this might open a wider door for proprietary products at some future time (a thin silver lining for now)
• Limited endorsement authority – capping the HECM production on an annual basis at some level lower than otherwise expected production

Our industry faces a major decision.  If we believe the new assumptions are likely to continue indefinitely (and I don’t think many people are predicting a rapid rebound in home prices at this point), then we can either let our future be decided for us through the appropriation process or suggest an alternate course (or courses) to set our industry on a more independent path.

If our industry wants to re-instate our status as a budget-neutral program that cannot be attacked as a giveaway to seniors, we have a very important discussion in front of us on the best way to achieve that goal.  It seems premature to suggest that lowering LTVs or raising MIP is the best way to achieve the goal, even if we may end up there eventually, simply because it’s too important to rely on back of the envelope assessments of such critical economic elements of our industry.

Call us biased, but we’d suggest that the next step in this case should involve a rigorous analysis of the substantial history we’ve created as an industry to craft a reasoned, intelligent, and most importantly, factual, recommendation for the HECM product’s future.  We’re certainly not suggesting that a recommendation would emerge unscathed from the deliberation process, but it seems the surest path to reasonable discussion – with the industry having more than a token presence at the table.

What do you think?