Surging Foreclosures & HECMs


What do surging foreclosures mean for future HECM applicants?

Unemployment, foreclosures, and interest rates ultimately impact reverse mortgage lending. The point of today’s episode is not to dwell on the negative but to take an honest hard look at economic factors that can no longer be ignored amid a housing market and economy that frankly feel surreal. Presently, home prices remain frozen near their record highs despite mortgage rates doubling in two short years with a few notable exceptions. Also, the U.S. GPD continues to show robust economic output despite our national debt reaching unsustainable levels. What gives and what are the potential impacts on reverse mortgage lending?

A frozen housing market & foreclosures


First, let’s examine the housing market. Home sales have plummeted to record lows- what many refer to as a frozen housing market. The primary culprits are low inventory, high mortgage rates, and stubbornly high home prices that have pushed most would-be homebuyers to the sidelines. 


However, the housing market could thaw quickly should foreclosures continue to surge. Redfin reports foreclosures have steadily risen as interest rates increased. And a new report from ATTOM reveals an 8% increase in foreclosure filings. In addition, REO numbers in several states have reached levels seen since the Great Financial Crisis and Housing Crash of 2008. The annual increase in foreclosure filings in February jumped 51% in South Carolina, 50% in Missouri, 46% in Pennsylvania, and 7% in Texas. Despite this surge in foreclosures, 28 states saw a reduction in foreclosure activity. That would indicate the regional impact of employment or underemployment. 


With that in mind let’s look at the highest foreclosure rates for larger cities with a population over 200,000 residents. In February there were 1,367 foreclosure starts in New York City, 998 in Houston, 808 in Los Angeles, 792 in Chicago, and 777 in Miami. Keep in mind the long-term ripple effect that continues from the expiration of foreclosure moratoriums and evictions. 


The annual uptick in U.S. foreclosure activity hints at shifting dynamics within the housing market,” said Rob Barber, CEO at ATTOM, in a press release about the report. “These trends could signify evolving financial landscapes for homeowners, prompting adjustments in market strategies and lending practices”…which really doesn’t tell us anything. Underlying those shifting dynamics are the unemployment rate, interest rates, and economic conditions. More importantly, increased foreclosures whether locally or nationwide increase inventory and push down home values. This would impact potential reverse mortgage borrowers in affected areas. 

Unemployment and the national debt


Bloomberg Economics ran a million forecast simulations on the US debt outlook. 88% of them show borrowing on an unsustainable path.  Bloomberg reports the Congressional Budget Office’s latest projections show US federal government debt is on a path from 97% of GDP last year to 116% by 2034 — higher even than in World War II. 


This should come as no surprise with spendthrift lawmakers in both parties in Washington DC spending away the future of coming generations. The trick is we enjoy the benefits of deficit spending in the short term and Congress knows this as it keeps them in good standing with voters. However, as debt levels continue to rise creditors and those buying U.S. treasuries will begin demanding higher returns to offset the risk. Reduced demand for U.S. Treasuries would push interest rates up even further, slow the economy, and lessen the value of the dollar. All of these factors will contribute to further downward pressure on home values. Should the government continue to print money to mitigate the impacts of a burgeoning debt then inflation would accelerate once again.


The bottom line is home prices are likely to soften in several metropolitan areas across the country. A nationwide housing depression is highly unlikely barring any unforeseen black swan event. In the meantime, all we can do is be observant of national and local economic trends and continue to search for older homeowners who could use some financial relief that a reverse mortgage could provide. 


Should you loan money to someone who is house rich and cash poor?

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Should you loan money to someone who is house rich and cash poor?

A financial advice columnist was asked if it was a good decision to loan money to her 60-year-old daughter who has a home worth $800,000. Here’s what she said…

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5 Ways Retirement Is Scarier Than Seniors Expected

RapidReverse reverse mortgage calculator app

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RapidReverse- the mobile HECM calculator for reverse mortgage professionals

Industry educator and innovator Dan Hultquist in cooperation with Apptensity released RapidReverse. This mobile app brings the power of quick and simple HECM calculations into the pockets of reverse mortgage professionals.

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  • RMI Market Minute

  • MSN- 5 Ways Retirement Is Scarier Than Seniors Expected

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Why is the HECM a niche product?

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The Brookings Institution: Reasons for low HECM uptake and how to expand market growth

Despite the more Americans retiring without sufficient savings to fund their non-working years, reverse mortgages remain a niche product- one whose acceptance has shrunk considerably in recent years. This conundrum is addressed in a recent paper released by the Brookings Institution entitled, “The unfulfilled promise of reverse mortgages: Can a better market improve retirement security?”

It’s ironic when you consider the increasing debt held by older Americans, the near-complete disappearance of pensions from private sector companies, and increasing longevity. One would conclude this should be the golden age for reverse mortgages- but it’s not. The authors of the paper from the Economic Studies at the Brookings Institution made their case on why the Home Equity Conversion Mortgage is not widely accepted and how the HECM can move from being merely a niche product to one that has widespread acceptance. For those of you not inclined to read the report here’s our brief summary.

Jumbos compliment a challenged HECM market

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Jumbo RMs and those caught in the middle

Two months ago we asked if private reverse mortgages would stop the slide in our industry’s overall loan production with the increasing popularity of the jumbo or proprietary- this as the HECM’s volume has dropped considerably.

That question was raised again most recently in Reverse Mortgage Daily, but with a twist. One of the more interesting observations in that piece comes from the director of Cambridge Credit Counseling. Jennifer Cossentini said, “I do think there is a strong possibility that the reverse mortgage landscape that we know now will flip in the next few years. I think the proprietary products have the potential to evolve and change to fit the consumer’s needs much faster than the HECM can.”

While private lenders can be much more responsive in meeting older homeowner’s needs, presently only those in higher-valued can benefit from proprietary products.

But do private or proprietary jumbo reverse mortgages truly compete with the HECM? It’s really not a question of one loan versus the other, but rather how each may complement each other in terms of total industry volume. So where can the jumbo reverse provide relief?