Uncertainty, Hope & Expectations

Shannon Hicks June 3, 2018 3


ePath 100K RM leads

Despite challenges there is reason for measured optimism

While we are seeing positive indicators in the reverse mortgage industry such as Mutual of Omaha’s recent entry into the market, many are concerned in light of significant declines in loan volume following HUD’s October changes to the Home Equity Conversion Mortgage. What is a realistic outlook for the HECM marketplace? What potential changes should we be mindful of?

Ironically with more American’s lacking adequate funds to retire the federally-insured reverse mortgage’s popularity has plummeted. Realistically, barring any further significant changes, we should anticipate slow but steady growth in the short term. In the short term, we can anticipate further consolidation. One significant and positive sign is the confirmation of Brian Montgomery as FHA Commissioner. Most notable is Montgomery’s support of moving the HECM out of FHA’s MMI Fund and back into the General Insurance/Special Risk Fund. This is key as each fund is treated differently when it comes to accounting and appropriations…

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3 Comments »

  1. James E. Veale, CPA, MBT June 4, 2018 at 11:05 am - Reply

    For an industry in secular stagnation, there is a huge need to branch out and find new demand for our product. So far that has not been the case. That may change with the advent of proprietary reverse mortgages. There is one catch; however, increasing interest rates stifling the ratio of proceeds to value.

    I am one of those who speculate but believe that HECM Principal Limit Factors will be decreased for next fiscal year. The reason for this view is that the average loss per HECM for the fiscal 2017 new book of business was the largest estimated for any such cohort in the MMIF of 9/30/2017. The softball approach to the changes on 10/2/2017 do not seem strong enough to push such potential loss on the new book of business for fiscal 2018 down to zero or positive. But that is yet to be seen.

    Right now the usefulness and appeal of the HECM are in decline. That is the problem of an overly optimistic view of how HECMs perform. What is clear is that do not perform as well as their creators believed they would.

    This is not the end of the HECM but at least for a while it could become more like what the Home Keeper once was to the industry. But the industry can expect continued interest in HECMs even if there is another drop in demand due to lowering of PLFs for fiscal 2018.

  2. John A. Smaldone June 4, 2018 at 11:56 am - Reply

    Shannon,

    Another great report, you covered a lot of territory today!

    One item you mentioned was the possibility of HUD reducing once again the PLF adjustments? I hope you are dead wrong on that one my friend!

    If that occurred, I don’t see the HECM surviving, only the proprietary reverse mortgages out there and those emerging!

    I feel as you do Shannon, very confident with Montomery’s appointment. Already some of what he is talking about projects optimism in our industry.

    I also feel as he enters the scene in a big way, the PLF adjustments will be a major priority for him!!!

    Another point you touched on are signs of endorsements increasing. Remember, we have over 10,000 baby boomers daily turning 62 years old, we also have more equity in homes owned by seniors than ever before.

    Coupled with the inadequacies of enough funds for seniors to retire on, the HECM is a great retirement planing tool to utilize.

    If we play are cards right, go after new markets and set are targets differently than ever before, we have opportunities out there for all of us and especially our senior homeowners!! Let’s get behind Montgomery all the way and suppertime him to the fullest!

    John A. Smaldone
    http://www.hanover-financial.com

    • The Positive Realist June 5, 2018 at 11:09 am - Reply

      John,

      Stirring up optimism through speculation is not sage advice. Also speculating that the HECM program will not survive lower PLFs. For the first dozen years of the HECM program, total endorsements never reached 10,000. It could easily survive at lower levels, famously.

      Back in 2011, one HECM stats guy was being quoted all over the place on how there were definite signs that HECMs were recovering. I have no way of knowing otherwise but it sounds like he was divining through reading tea leaves. Soon the optimism that speculation created changed to dismal pessimism as “that recovery” never materialized.

      Do you remember the Extreme Summit? We had originators attacking other originators just because they could not perceive reaching 300,000 endorsements by fiscal 2018 (oops, we are nearing the end of fiscal year 2018). The optimists claimed to be the collaborators that get endorsement production reaching for the stars. Some job of collaboration.

      Just because PLFs MAY BE a major priority of Commissioner Montgomery, that does not mean his concern is about increasing them. It is time to wait and see, not bombard the guy with requests for irrational actions when he is just getting familiar with his staff and their current assignments.

      Optimism like pessimism has limited usefulness. Being unrealistic and trying to create a new fantasy land ain’t all that helpful. So far 11,000 seniors turning 62 daily for over a decade and senior home equity reaching new highs for the last five years or so have not noticeably helped this program at all. We are still in secular stagnation with signs showing that we may be coming out soon only because fiscal 2019 will be a loss year for endorsements (NOT because endorsements will rise in fiscal 2019).

      Your comment shows the two extremes of optimism — great opportunities but if they do not go that way, no survival for the HECM program. Sometimes the results of optimism are worse than pessimism. So lets stop with all of the extremes already.

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