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[Fortune] “Moody’s Analytics expects that U.S. home price decline to widen to between 25% to 30% in 210 “significantly overvalued” housing markets.
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In the early spring, you may have been ‘locked down’ working remotely in response to the COVID-19 pandemic and caught a case of cabin fever in the process. Perhaps you over-indulged in binge-watching Netflix to pass the time you would have typically spent going out to social functions. Regardless of what your current situation may be, reverse mortgage professionals have good reason to be excited, grateful, or just simply relieved. Here are five to consider.
Lending Limits are both national and remain high
Despite repeated recommendations to roll back the national lending limits back to regional or county-by-county maximums, today we enjoy a robust $765,600 maximum claim amount (MCA). This is the cap on the maximum appraised home value that can be considered in calculating a federally-insured HECM’s gross principal limit. Fortunately, it covers the majority of homes in most U.S. markets. Eliminating the national MCA in favor of local caps literally requires an ‘act’ of Congress. Both the upcoming election and ongoing stimulus measures have eclipsed addressing any such consideration presently.
Housing prices are booming
A general shortage of housing inventory and record-low interest rates have home prices reaching record heights, some not seen since the 2008 housing crash. Both HECM and proprietary reverse mortgage borrowers are in an advantaged position to tap their home’s value at what may be the peak of the market. Homeowners struggling to pay their existing mortgage may find themselves now able to qualify based on their latest value and low interest rates. The question many market watchers are asking is if the boom will continue or if values will fall.
Historically-low interest rates
Although HECMs will soon be moving away from the LIBOR, all global indexes are setting record lows as governments take stimulus measures to boost their economies struggling in the wake of the coronavirus and economic shutdowns. In some instances, low rates and high home values have all but erased the impacts of the infamous October 2017 reduction of principal limit factors (lending ratios).
When the interest rate floor of the HECM was lowered from 5 to 3 percent we lamented the drop believing we would never see effective interest rates reach such a low. A few short years later many HECM loans are hovering at or just below a meager three-percent.
Financial Advisors seeking alternatives
The stock market’s volatility remains fresh in the minds of both the financial professional and their clientele. Those who once eschewed reverse mortgages are coming around to the realization that all options should be put on the table to form a plan that accounts for stock market volatility, inflation, and sustainable withdrawals. Now could be the time to rekindle your connections with advisors in your market.
HECM-to-HECM refinances
Late last year HUD proposed that FHA move to eliminate all HECM-to-HECM refinances. Fortunately, FHA made no such change. Today nearly one-third of all HECM applications are refinance transactions as borrowers harvest additional funds from their home. As a result, refis have become a significant driver of ordination volume and profitability.
Certainly, we face much uncertainty, however, we have much to be grateful in the midst of the storm. Count your blessings- at least five of them.
1. DEMOGRAPHICS–
Demographics are the data that describes the composition of a population, such as age, race, gender, income, migration patterns, and population growth. These statistics are an often overlooked but significant factor that affects how real estate is priced and what types of properties are in demand
Urban flight in the wake of COVID-19 lockdowns, closed businesses, widespread civil unrest, riots, and increasing tax burdens in our largest cities. For example, since July 2019 rents are down 10% in Manhattan as former downtown residents move to the surrounding boroughs, to the suburbs, or out of the state.
2. INTEREST RATES-
Today’s average interest rate on an adjustable-rate HECM range from… Read More
Reverse Market Insight’s recap of June 2019 endorsements states, “2,500 endorsements per month is the default volume setting for the industry right now”. Calculate that out and that would equate to a new low in annual HECM endorsements totaling just over 31,000 loans insured by the FHA this fiscal year (which ends September 30, 2019).
“It’s only up from here” (anonymous)
If there’s a silver lining it would be that perhaps we’ve reached a functional low for HECM loan volumes. Functional in the sense that the remaining large lenders and brokers have found a way to succeed in today’s market.
For those watching our industry’s volume plummet with a growing sense of unease, consider the following:
Barring any further reduction of PLFs or additional restrictions, we may have tested the bottom of the lowest volume of HECM loans. If that is the case, it’s only up from here.
It’s a marketshare problem. As an industry we have been negatively impacted by falling home values, cuts in lending ratios or principal limits, elimination of products and borrower qualification guidelines. In 2009 over 114,000 reverse mortgages were endorsed versus only 54,000 in 2012. Consequently we can easily point to any of these factors as the leading cause of our lack industry volume. But are we not seeing the forest through the trees? One well-respected industry leader told me “I don’t want a bigger piece of the pie but a bigger pie itself”. Otto Cushman, CEO of Liberty Home Equity Solutions was quoted in Reverse Review’s article entitled “Extreme Summit” saying “ Less than 1% penetration, We are failing”. He backs his assertion comparing 50,000 endorsed loans in 2013 to 200,000,000 [correction made from 200,000] qualified senior households with sufficient equity equally a paltry one quarter precent of available marketshare. It’s boils down to the law of numbers. The same principle that motivates us to look at how many leads it takes to generate X amount of loans per month should be our approach to marketshare. More positively interested potential borrowers equals more loans. So where do we beign?
Reverse Mortgage News, Training & Technology at ReverseFocus.com
What are the challenges with appraisals? We all face them every day. Our interview with Erik Richard of Landmark Network (AMC) sheds light on appraisal management, home values and more.
Continue readingThere has been much discussion as to why reverse mortgage volumes are at historic lows.Will reverse mortgage volume slowly rise again like the mythical Phoenix from its ashes? A look at current home price trends and our future.
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