Two Steps Back – HECM Lenders June 2014

We’d like to blame our business trip to the East Coast for our delay in getting this newsletter sent out, but in reality we’re still grieving over the US national team’s defeat in the World Cup despite a valiant defensive effort. Getting out of a brutal group stage was a big win, but it still hurt to get sent home by a tough Belgian team that played a great game. So close and yet so far – onward to Russia 2018! Now back to our regularly scheduled programming…

HECM endorsements dropped -12.7% in June from May, to 3,927 loans. That’s the lowest monthly total in 18 months (3,912 loans in Dec 2012) and there’s a distinct possibility in the next few months we could go below the trough from that era of 3,706 loans set in September 2012. If that were to happen, we’d be back at levels not seen since 2005.

The good news is that FHA just raised the principal limit factors for most older borrowers at present interest rates, which would allow more cash for most borrowers in the market today. That gives back a small piece of the reductions in principal limits that have played an outsize role in shrinking industry volume over the past 6 years.

The bad news is that FHA at the same time reduced the principal limit factors for borrowers as 10 year interest rates rise, so reverse mortgages are less of a business hedge against reduced forward mortgage refinance volumes in the same scenario.

Bottom line is that industry growth is going to be linked to penetrating the home purchase market much more extensively than at present, changing the perception of reverse mortgages to a financial planning tool and bringing private capital back to offer proprietary products. Given how low the industry bar is set right now succeeding at any one of those could double current volumes in the next few years very easily, but pursuing all three strikes us as the most rational approach.

Click the image below for the full report.