Downside Risks – HECM Lenders September 2013

HECM endorsements dropped -15.9% in September to 4,527 loans in the beginning of what we expect to be a trend of falling volumes related to the FHA HECM program changes enacted earlier this year.

Based on case numbers issued trends (a proxy for applications) in the chart below, it’s pretty easy to see that the decline in applications after the Fixed Standard moratorium April 1 is the major reason for this month’s decline in endorsements. The effect was one month later than our usual 4 month lag assumption since Fixed Standard loans could be funded through June 30, which led to endorsements through August. But by September, Fixed Standard was effectively a thing of the past.

AppsEndsLag

The industry’s recovery from April’s application decline was heartening to see and should extend through September’s case number totals, but it will be short lived due to the PLF reductions and utilization restrictions that went into effect September 30. In all likelihood, we’re looking at a reasonable ending to the year from an endorsement perspective while there is significant volume, revenue and profitability pressure based on fundings.

Now back to the September HECM Lenders report, which showed declines across 9 of the 10 regions and 6 of the top 10 lenders.

  • New Day Financial had the largest percentage decline in September at 49%, which could indicate they had a heavy mix of fixed rate loans and likely precipitated their recently announced exit from reverse
  • Security One/RMS, Urban and Reverse Mortgage USA all saw volumes grow, while Associated Mortgage Bankers was steady from August
  • Pacific/Hawaii continues to show the largest year over year growth among regions, but there is a scattering of metros with >50% volume improvement both there and elsewhere:
    • 60+%: Columbus OH, Phoenix, Las Vegas
    • 50-59%: Omaha, Pittsburgh, Detroit, Tucson AZ, Shreveport LA

Please click the image below for lender rankings and more in the full report.