Reverse Mortgage Trends 2011: What to Watch
By Elizabeth Ecker
It has been a rocky ride for reverse mortgage professionals this year. From bank exits to new products, RMD sought the advice of some industry analysts to see which trends they are watching most closely in 2011 as we embark on fiscal year 2012, beginning October 1.
Lender exits may be the underlying theme, but here are some things to watch in the coming year.
The HECM Saver approaches its anniversary this October. While a far cry from the 20% the Department of Housing and Urban Development initially projected for Saver market share, there are some success metrics and analysts are still bullish on the product.
“We think the Saver will continue to gain traction,” says Mike McCully, partner at New York City-based New View Advisors. “I think one of the challenges the industry has from both a counseling and an originator perspective is that it is a very different sell.”
In fact, the Saver has been gaining traction throughout the year, and is near 10% market share as of July 2011.
The majority of Saver volume has come from large lenders, with MetLife seeing the most potential for the product at more than 20% of its overall volume.
“I had much higher hopes for the Saver,” says John Lunde, co-founder and president of Reverse Market Insight. Still, he says, it is a trend to watch as we round out the year, especially in light of the major bank exits. Those lenders, Lunde says, were responsible for more than half of Saver volume when they were still originating loans. But, he says, it’s not to say others aren’t seeing success.
“I think we will get to 20%,” he says. “We got to 9-10% in six months.”
When the market will open up for the product remains to be seen, but the analysts are positive in their outlook.
“It’s still in its infancy,” says McCully. “It’s a different sell and a different customer. Over time as the market recognizes this opportunity, it will grow.”
The Secondary Market
The market for reverse mortgage loans backed by Ginnie Mae continues to develop and is key to building a stable marketplace. Prepayment speed is one thing to watch, McCully says.
“We continue to think that prepayments are going to remain very slow,” he says. But, in terms of securitization of home loans in general, “securitization is dead except for Ginnie Mae. We need to have [private] securitization back, or housing markets are never going to work.”
Additionally, the expected rate, which changed suddenly last year essentially froze the secondary market temporarily. It is a change that the secondary market has hoped would pass 2012 by—and so far, it has.
“HUD changed it last year overnight,” McCully says of the rate change from 5.5% to 5%. “If they do a better job of communicating, it could create another tier.” If not, however, concern over prepayment speeds could have a chilling effect on the investor market.
The vast majority of Top-10 lenders remaining in the industry have seen an increase in volume following the exits of Bank of America and Wells Fargo. Both in terms of hiring former originators from those companies and increasing the number of loans, those left in the industry are making the most of the opportunities.
“We could see more consolidation occurring,” McCully says. “With the big banks out, those who [remain] in the market realize they have to have critical mass and size....We might see more.”
Whether the current players grow or join forces remains to be seen.
“The lender consolidation story is still unclear,” Lunde says. “Right now, the stats are harder to read because of [the] transition [to allowing non-FHA-approved TPOs]. The industry was led by a handful of states for a long time. In past year or two we’ve seen the other states catching up and contributing more volume. There is a huge number of states that are growing faster than the industry average, but the larger states are growing slower.”
Independent of regional growth, however, the number of active lenders has declined steadily over the past two years, while endorsements per lender has increased strongly. Fewer industry players are beginning to see a larger share of the volume.
The shift by HUD to allowing non-FHA-approved third party originators (TPOs) to originate HECM loans has the potential to cause a retail-wholesale shift, analysts say.
With new TPOs in the market essentially acting as they once did through the HECM Advisor program, the industry is poised for change.
“Opening that door back up presents the potential to move this back toward a majority wholesale industry,” Lunde says. With a shift more toward retail, the mix has moved in recent years from a 60/40 ratio of wholesale to retail, today the picture is almost the exact opposite.
The development of a HECM financial assessment that would guide lenders toward ensuring borrowers can meet their tax and insurance payments is under way and has a strong potential to impact the business in the coming months and years.
While the impact on volume is unknown, most agree the financial assessment will ultimately serve as a strong preventative measure in the effort toward responsible lending.
“There is a clear forward looking connection from the exits of Wells Fargo, Bank of America and Financial Freedom,” Lunde says.
“I think about how strict the financial assessment will be and therefore the impact on volume but also impact on what it means for different lenders," he says. "Generally the bigger lenders and wholesale lenders will be driving the train.”
From the development of a HECM financial assessment to picking up market share in the absence of industry giants, there is no shortage of change on the horizon for 2012. But if recent history is any indication, the players that remain in the market are positioned to benefit in light of the trends noted by industry analysts and the greater climate of a growing number of Americans who are becoming eligible to take advantage of reverse mortgage loans.