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Walking away? Loan Fall Out

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[vimeo id=”50328661″ width=”625″ height=”352″]

Are potential reverse mortgage borrowers and applicants walking away from the loan or is it that they just don’t qualify? The question stems from a recent report from IBIS software which is tracking the number of HECM borrowers who receive counseling that actually end up with a closed loan. A first HECM counseling protocols were suspected by some as to why so many never closed a loan. But is that really what is happening? Other factors must be examined such as appraisal values, property conditions or just cold feet. Our video segment examines the numbers and possible causes and also reason to be optimistic in the future.

 

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  1. The counseling numbers from Ibis are not a reliable source of information on the number of sessions that actually take place. A substantial number of the sessions counted in August, for example, are not real clients, but are practice clients entered in the software during and immediately following a counselor training at the NeighborWorks training institute in August.. This probably accounts for much of the jump in volume from July to August. In addition, some counselors use the software when speaking to clients who are simply calling for information and who are not ready to receive counseling yet. For these reasons, any conclusions drawn about counseling from Ibis data are not to be relied upon.

    • rmcounselor,

      Let us say you are right; however, it is my belief that as Mr. Wagner has indicated, the number of certified counselees who see their applications receive FHA Case Numbers has risen since the introduction of the new counseling protocol. What has gone down and continues to go down is the percentage of applications with case numbers assigned getting endorsed. To obtain a case number requires not only successful completion of counseling but also a completed application.

      Since certified counselees do not receive their official counseling certificate or their FIT report generally until shortly AFTER a Case Number is assigned to their application, there is some loss of certified counselees at that point due to the pitiful and confusing FIT report. In measuring the increased dropout rate in fiscal 2010, that portion of the dropout rate appears to be about (an unnecessary) 4%.

      If the FIT portion of counseling was properly modified and the FIT report modified accordingly, the dropout rate following counseling would probably dry up resulting in counseling boosting the number of endorsements but only slightly (perhaps as much as 2%-3% at the most).

      What is troublesome is not the dropout rate produced by counseling although that seems unnecessary, it is the annualized conversion rate of applications with case numbers assigned turning into endorsements which is getting worse and worse. In October 2007, the annualized conversion rate was 95.9149% but for September 2012 it was only 63.9065%. Putting that into more meaningful numbers 100,000 applications with case numbers assigned getting endorsed in the twelve months ended October 31, 2007 would have yielded about 95,915 endorsements but in the twelve months ended September 30, 2012, only 63,907 endorsements. If a single lender produced that difference in a single fiscal year (32,008) it would be the all time record for any fiscal year.

      To put it another way, to produce 100,000 endorsements in the twelve months ended October 31, 2007 would have required 104,259 applications with case numbers assigned. However, during the twelve months ended September 30, 2012, 100,000 endorsements would have required 156,479 (or 50% more) applications with case numbers assigned. That is an incredible increase.

      Although the new counseling protocol when it comes to FIT desperately needs improvement, counseling other than FIT seems to have slightly improved endorsement results. Properly revising FIT would definitely help.

  2. The # 1 killer is home appraisals.

    • Mr. Riddle,

      Maybe but most likely not.

      As indicated in my response above, over the last sixty months the annualized conversion rate has been taken a dive. HUD saw it was getting noticeably worse as surviving large lenders began playing musical chairs when Wells and B of A were leaving and then left the industry. Some claim this is due to the growing number of applications being produced through call centers. Based on that alone, the indications are that the conversion rate will only be getting worse over the next few months.

      While there is little doubt that some part of the drop in the conversion rate is tied up in appraisals if anything that rate should be receding by now. Our ability to manage expectations will not eliminate this element of the dropout rate but we should have been able to adjust how we prepare seniors for this problem so that it would recede slightly over time until values return.

      If the observations made by HUD are right, we should see the dropout rate grow as the call centers take larger shares of the market. Of course, some lenders whose principal operations are boots on the ground also have smaller call center operations which, in some cases, have been expanding.

      A NRMLA study performed by Vertical Lend some years ago demonstrated how the level of education and involvement of the originator with the prospect can improve the chances of origination. The results of that study indicate that a significant change in the content of the information presented and how it is presented can increase the odds of origination. The study showed that either incorrect or inadequate information was presented to the prospects and when that was turned around, those who had decided not to originate a HECM previously decided to obtain one.

      So at the present time, it seems a thorough analysis of the conversion rate is in order. But for now the questions become who will perform it and how will it be paid for?

  3. The only killer is values.

    • Ms. K,

      Many believe it is also the growth in call center operations. The conversion rate not only applies to the industry but it also applies to lenders. The biggest lenders who have left the industry have had historically high conversion rates while the vast majority who remain, not so much.

      It is not just values but also how we operate versus the largest lenders. However, there are many other causes including some additional lender overlays on types of properties, counseling FIT reports and tighter underwriting standards. While low values are a sticking point so is poor appraisal quality and lower standards.

      There are many, many causes but perhaps what is dragging it down even more right now is the loss of the higher conversion origination lenders.


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