We’ve already talked about overall industry trends for October and retail/broker channel changes. We’ve also discussed the geographic trends in great detail throughout the year, in Baltimore, Philadelphia, and New Orleans. Those same themes are continuing in the report for this month as well, so rather than re-hashing, it’s a fitting time to look out beyond the new year to 2011 opportunities.
First, we’d like to point out that despite the year over year decline in endorsements, our industry is in a very nice uptrend for applications that sets the stage for a better 2011.
The chart above clearly shows an uptrend for our industry since January, shown by the black dashed line. While we don’t yet have November application numbers, the trendline suggests we might see 11,600 applications for the month. Such a figure would mark the first time since August 2009 that our industry is back above the 10,000 applications plateau that was sustained from August 2007 until the first principal limit reduction. Granted, September 2010 registered a higher figure, but we’re excluding that because it was distorted by applications ahead of 10/4/2010 principal limit changes.
So the industry is on an uptrend, but what can sustain it? We continue to believe HECM Purchase is a great opportunity for our industry and we’ve made our case there before, but it continues to be troubled by housing markets that are slow, and price levels that make it difficult for potential customers to sell existing homes to purchase a new residence (with a HECM Purchase). Great product, great future, but we’d put our eggs in a different basket for short term growth. That better basket is HECM Saver.
We’ve been bullish on HECM Saver for months, but let’s get into detail on why.
The chart above illustrates all 65+ homeowner households in the US by mortgage type, compiled from US Census data and our own reverse mortgage database. You can see that just 2.2% have a reverse mortgage (there is some rounding adjustment here), which is what our industry has done in 20 years.
That has largely come from the 30% of the population with traditional forward mortgages or more than 1 mortgage, represented by the aqua and purple segments in the chart. That implies a fairly low conversion rate, and we would argue that’s largely due to two factors:
- High upfront costs reduce borrowers willingness to switch to HECM Standard
- Troubled property values disqualify many potential deals due to insufficient equity to payoff existing mortgage(s)
HECM Saver is not a solution for the second issue, but offers a clear option for the first factor above. Even more importantly, Saver lets our industry address the next two segments (green and red, appropriately for the holidays) very well. Households with only a HELOC or HE loan oustanding (1.1 million borrowers, typical balance of $50K) should look very favorably on a HECM Saver that potentially offers major benefits relative to their existing financing:
- Guaranteed access once approved – can’t be reduced or closed by lender based on updated home value estimates as most HELOCs can
- Lower interest rate potential – up to 2 points lower when we checked Bankrate on 12/9
- Complete payment flexibility – no required monthly minimum payment on balances
With comparable closing costs and greatly reduced credit requirements for HECM Saver relative to HELOC/HE Loans, we strongly believe this is our industry’s next big opportunity. We admit that we’re optimists by nature, but this year we can’t help but look at the New Year with a twinkle in our eye.
Click on the image below to view the full Industry Trends report for this month.