May’s application numbers have good news and bad news for the reverse mortgage industry.
The good news: apps grew for the fourth straight month since reaching a low of 5,805 in January, now up 37% since then to 8,363 in May.
The bad news: lower upfront costs are likely fully baked in to these numbers by now, and we’re still nowhere close to the typical volumes we saw before the 10/1/09 principal limit reductions.
Applications overall continued to rise above the levels seen immediately after the principal limit reductions (red line) but well below the levels before (green line). Apps increased 2.4% on a gross basis vs. April.
Adjusted for the number of working days in each month the chart is slightly more favorable, showing a 7.2% increase vs. April after we account for one less working day in May.
We were recently asked by another industry veteran whom we respect a lot whether we thought endorsements have seen a bottom yet. It’s a good question, and we thought it would make an interesting quick little visual for you as it highlights another question of interest.
When comparing applications to endorsements, it helps to consider the timeline from one to the other. We generally use 4 months (basically allowing 2 months each for closing and insuring), which becomes clear on the charts. First, without a timelag:
There’s clearly a pattern, but introducing the timelag makes it much clearer:
As you might suspect from the chart, we do think that endorsements have probably bottomed given that May endorsements came in low 4 months after January’s application trough. One hint we could be in for a further decline is that the implied pullthrough rate of 78% for January apps to May endorsements is high compared to recent readings in the high 60’s, but we’re probably not going to see too much decline given the respectable bounce in February applications.
The other point that’s interesting here though is that the October spike in applications doesn’t appear to have produced any real corresponding spike in endorsements since. Granted, February and March endorsements were too high to be entirely attributed to October and November applications, respectively, but we haven’t seen a single monthly increase in endorsements since December.
We’d be very interested to hear your feedback on this point, but from this view it seems disturbingly obvious that applications taken in a rush ahead of program changes collectively showed some of the lowest quality pullthrough the industry has seen in years.