It’s been a brutal year for the reverse mortgage industry, and that’s saying something considering everything the industry has been through.
For much of the program’s 30 years it has battled negative public perception and weathered unexpected regulatory twists. But its tribulations are far from over.
The reverse industry closed out 2018 with volume down 26.7%, falling from 2017’s 56,912 loans to just 41,736, according to Reverse Market Insight.
The industry peaked in 2009 when it closed out the fiscal year with 114,692 loans, according to data from the Department of Housing and Urban Development.
The plunge is a result of program changes instituted in late 2017 that reduced the amount of proceeds and the number of borrowers who could benefit from this loan.
Lenders in the space have fought hard this past year to recapture profitability. In 2018, the industry saw its leaders adopt a multitude of strategies, including rebranding, merging, introducing new products and re-evaluating lead generation models to make up for losses.
Still, most lenders in the space closed out the year in the red.
Now, constrained by new guidelines that make a reverse mortgage less beneficial, is the industry destined to embrace a business that operates with less volume? Are we looking at the new normal?
Yes – for now, said Joe Morris, senior vice president of reverse mortgage lending at Open Mortgage.
“The industry will recover, but it will take years, or some positive changes from HUD,” Morris said.
But Morris said he remains hopeful that the industry will reclaim the volume it has lost, eventually.
“We will get back to that volume, but it will take time and innovation on the industry's part. The demographics are still the same with 10,000 Americans turning 62 every day,” Morris pointed out. “You cannot ignore that fact.”
Others point to demographics as an indicator that demand for this product will persist through the dips.
“We know that the population of retiree homeowners is continuing to grow,” said long-time reverse mortgage professional Mark Browning, adding that housing wealth represents a huge portion of total wealth for these older Americans.
“Providing liquidity to the equity asset will continue to be an essential element of the retirement finance landscape,” Browning said.
But to keep the HECM alive, some say HUD needs to reassess its policies.
Browning said HUD can make some adjustments to improve the HECM’s performance and ensure its long-term sustainability.
“We need to better isolate and manage risks in the HECM portfolio, including post-assignment collateral impairment. These risks and losses degrade the performance of the entire book and are the catalyst for some of the changes that are now disadvantaging product design,” Browning said. “Greater predictability of financial performance will enable product review and potential enhancements.”
Morris also points to back-end issues that need fixing to curb the HECM’s losses.
“The best thing is for FHA to fix the back end on the loans they are servicing and selling. Now, they are only getting around 25 cents on the dollar. Once this is fixed, FHA will be able to lower MIP and improve PLFs,” Morris said.
Hopes for policy change aside, a great number of industry participants see promise in the burgeoning proprietary reverse mortgage market. It is continued innovation on this front, some say, that will drive reverse mortgage volume.
“HECM was never intended to be the total solution; a combination of private and public tools is needed,” Browning said. “More innovation from the private sector. Providing age-appropriate liquidity to housing wealth is an essential to solving the retirement finance equation. HELOC is not age appropriate for most of our constituency.”
Until these non-agency loans gain strength, some say originators can improve their own bottom lines by focusing on the opportunity in their own markets.
“Originators need to forget pre-10/2 and embrace our reality,” said Open Mortgage CEO Scott Gordon. “We have a great product that can help thousands of seniors. LOs need to embrace technology, and try multiple marketing strategies, to see what works in their markets.”
Gordon said he expects product innovation and marketing to fuel volume in 2019 – a year he predicts will see lots of action.
“In 2019 there will be struggles, innovation and consolidation” Gordon said. “New entrants – especially forward companies – will compete, technologies will emerge and some players will be gone.”