For those keeping score, we continue to see a counter-intuitive theme in the marketplace as volume declines seem to be hurting the direct lenders (“Retail”) more than brokers so far.  Direct lending (“Retail”) volumes were down almost 20% from December, compared with a 2.9% increase in broker business through wholesale lenders.  We don’t expect brokers to swim against the tide of overall industry volume declines for long, but we’ll continue to watch these numbers as a quick indicator of the relative health of these business channels.

Of course, we’re dealing with endorsements here so there’s a possibility it could mean that broker loans are slower to get endorsed and the decline might show up later.

We’re excited to report that we’ll soon be able to look at additional data to answer questions like this, as we now have 3 of the top 5 lenders participating in the industry data repository.  This puts our estimated coverage of reverse mortgage industry loans at over 40%, and we will start publishing reports talking about apps and fundings (instead of endorsements) once we have at least 5 of the top 10 and 50% coverage.  If you’re interested in finding out how you can participate and what this means for the industry, check out our status page or contact us directly for more information.

A few other highlights from the full report:

• Among the top 10 lenders, only 1 active company (excluding World Alliance, which is in runoff mode) had a volume increase from December: Generation Mortgage, which more than doubled.  Much of this appears linked to a large increase in fixed rate volumes, but obviously Sherry and the team have been doing something right to see such a dramatic increase.
• In case you’re wondering if the call center model works, One Reverse Mortgage continues to prove there are enough seniors comfortable completing a reverse transaction without a loan officer at the kitchen table to exclusively power a top 10 ranking.  They grew their retail volume faster than all others (including Metlife and Bank of America) in the past 12 months, showing that there’s more than one definition of “distribution” for all of us to consider.

Click the image below for the full report.

Despite continuing (and maybe growing) advantages for large financial institutions during the year, we’ve seen broker/wholesale reverse mortgage loan volume outpace direct lender “retail” activity in all but 1 month (March). Sure, broker/wholesale volume started the year with an advantage here given that it comprised 55% of 2008 loans, but 2009 remains a very respectable showing regardless.

The disparity introduced by the early availability of fixed rate product through broker channels is at least partially responsible, but perhaps the demise of brokers has been oversold? Time will tell (and we’ll keep you posted through these reports), but at least in the first round of our new world financial order, the brokers have survived to see another year.

A few other highlights from the full report:

• Broker/wholesale volume comprised 52.7% of all 2009 loans, down from 55.1% in 2008
• All four of the largest wholesale lenders in 2008 (Financial Freedom, JB Nutter, Bank of America and World Alliance Financial) saw broker volumes decline in 2009, as the industry broadened to include both more wholesale lenders and a more even distribution of volume amongst them
• Notable wholesale winners in 2009 include:
  • Metlife – up 156% to finish a close 2nd for the year to longtime leader Financial Freedom
  • Generation – up 209% to finish 5th
  • Genworth – up 242% to finish 6th
  • Urban Financial – up 170% to finish 7th
• It’s a testament to just how large a lead Financial Freedom’s wholesale business enjoyed to see them still come in number 1 after 2 consecutive years of over 40% declines in volume.

Click the image below for the full report.

The most concerning thing about this is the underwhelming ‘recovery’ from the expected slump in October.  October’s excuse is that half of those applications were pulled forward into September to beat the principal limit reduction.  That starts wearing thin in November since the average of the Sep-Nov (post PL announcement) is 6.4% below that of Jun-Aug (pre-announcement).

But by the time we get to December we have to start searching for a new, lower ‘normal’.  The four month period from Sep-Dec is 13.4% below the prior four months.  Two key questions come to mind: 1) Are there other reasons besides Principal Limit reductions behind the drop?; and 2) What might the new ‘normal’ application level settle at?

On the first question of other potential reasons behind the reduction, we’ve heard a long list of factors:

• Appraisal reviews leading to fewer closed deals – this would seem to suggest higher fallout rates and fewer endorsements, not necessarily lower applications
• Operational distractions from RESPA changes and NMLA licensing
• Lower broker economics leading to reduced marketing – the continuing shift to fixed rate products would seem to improve broker economics but the trend of originators leaving the industry could be plausibly expected to reduce aggregate marketing support for the product
• Fewer wholesale lenders – fallout from the World Alliance Financial and 1st Reverse shutdowns, plus funding constraints at JB Nutter have reduced the list of available wholesale lenders for reverse

These all might be just interesting sideshows to the main event of principal limit reductions reducing seniors’ demand for HECMs, but there’s no question that some combination of events is reducing HECM demand significantly in the last few months.  Based on recent trends it’s possible application volumes for the year could end up as much as 20-30% lower than 2009 (avg 8,000-9,000 per month).  There are many factors that could contribute to stronger volume (coops, HECM purchase, new lenders as FHA removes broker license requirements, etc.), but there’s another question that’s less speculative here too:

Would you and/or your company leave the reverse mortgage industry if your volume declined 30% from 2009?

Comment below or Contact us directly if you’d prefer not to comment publicly, but we’re very interested how many people would expect to survive that level of decline.

And for reverse mortgage loan officers, don’t forget to share your thoughts in our State of the Reverse Mortgage Originator Survey.

Enough with our word play, there are a few interesting points to note in this month’s report. Highlights:

• Leading off with some good news, we can welcome Financial Freedom back to the 4 digit club for the first time in a while, as they recovered from what was probably a misleadingly low June performance (369 loans) to 1,151 in August
• As the financial services industry continues to consolidate in spite of all the hand-wringing about ‘too big too fail’, our little corner of the world saw some of the same trends despite the increased broker activity noted above. For the first time since April, we had 4 separate lenders each with over 1,000 loans in August. We just missed having 5 lenders in the club for just the second time ever (Dec 2008), as Genworth’s recent product additions and wholesale sales force investments are bearing fruit – 934 total loans in August
• It’s no surprise to anyone who’s been reading this column that Metlife is the fastest growing wholesale lender in the past twelve months, but what might be more surprising is Generation, Genworth and Urban close behind at 2-4, respectively. Seems Sherry and Bob won’t ever tire of competing with each other, and I’m sure there are plenty of brokers out there happy to be benefiting from the friendly rivalry!
• And in case anyone doubts the power of distribution and brand in the retail side of this business, Bank of America is proving every day that bank branches are a superb source of reverse mortgage business. Not only is BofA the fastest growing retail lender in the country, they’re growing more than twice as fast as the runner up.
• That being said, the second fastest growing retail lender is proof that bank branches are not the only way to do business. One Reverse Mortgage is taking the direct to consumer approach and thriving.

Click the report link below for full details.

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.

There is a new #1 in the wholesale world this month – Metlife. (We like to think it’s because they use our Wholesale Analytics Report to help manage their wholesale business.) With 919 wholesale units, Metlife was far above #2 World Alliance (745) and #3 Bank of America (697). Though its not at the Freedom or JB Nutter levels of the past (yet?), it’s still an accomplishment worth mentioning.

The question, of course, is how did they do it?   It’s no secret that they have a very nice fixed rate product offering that is winning over lots of business and that’s leading to many successes in volume and capture rate.

Beyond sheer volume, we like to focus on things like customer capture – defined as the percentage of loans your brokers do through your company. If you look at the bottom left of page 2 on this report, you’ll see Metlife’s customer capture was 28% — not very impressive compared to JB Nutter or Financial Freedom (44% and 38%, respectively). But that’s a trailing 12 month look. If we look at the trailing 3 months, Metlife came in at 40%, and in the most recent month, their capture hit 49%.

While this doesn’t tell the whole story, it’s certainly one of the key components to their recent success. If you are a wholesale lender, one thing you should focus on is earning more of your customers’ business. (In fact, we strongly believe that this metric is one of the 3 key measures to base bonus pay structure on – think of it as the customer loyalty/happiness thermometer. Contact us for more information.)

Overall Wholesale volume for the month of May was down 20% from the prior month, to 4,275 units. This compares to a 35.5% drop in direct endorsed loans, and a 28.4% drop in overall endorsements – and marks a change from the previous months where the wholesale business underperformed.

Financial Freedom regained the top spot on a combined (retail + wholesale) trailing twelve month basis, holding an 18.1% market share, slightly higher than Wells Fargo’s 18% share. If we dive deeper into the numbers, the story changes dramatically – despite holding the overall lead for the trailing 12 months, Freedom’s wholesale business trailed the likes of BofA, MetLife, and World Alliance Financial in the month of May.

On a somewhat odd note, the only two wholesale lenders that saw volume growth in May were JB Nutter and World Alliance Financial. JB Nutter is recovering from their warehouse line issues, and, well, we all know what is happening at WAF right now, so it’ll be interesting to see where their customers go until the situation gets resolved.

As always, your questions and comments are welcomed – enjoy the report.

April’s wholesale numbers showed the impact of the JB Nutter warehouse line issues, and it hit their business hard as wholesale endorsement volume fell sharply to 233 loans from 1331 in the prior month.   The majority of the top 10 wholesale lenders saw some volume increases due to this, but the biggest beneficiaries of the Nutter issues were Generation Mortgage and Genworth.   Maybe they capitalized on some good information…

Keeping our focus on JB Nutter for a second, we’d like to point out that they have done a very good job of capturing their broker’s business thus far.  The box on the lower left of page 2 says it all — for the past 12 months, JB Nutter captured almost half of the business of every broker that submitted a loan to them, and is a full 9 percentage points higher than Financial Freedom, the closest competitor in this metric.  This is a decline from last month, but it goes to show how faithful their correspondents were.

It will be interesting to see if JB Nutter is able to get back to their prior volumes, and if so, how long it takes to get there.  Or will brokers be wary of going back to the same well that left them dry for a period of time?  One thing is certain, there are still a lot of broker loans up for grabs.