December 2009 – App Trends Update

Hope everyone had a great weekend and is either enjoying a relaxing holiday or at least enjoying the reduced distractions if you are sneaking in some work today!  We thought our readers might be interested in an update to our graph of application trends since the principal limit reductions.  Without further ado, here it is:

App Trends

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.