For months—and even years—it has long been accepted that the aftermath of the housing bubble has been the strongest contributor to a contraction in the reverse mortgage space.
Retreating an annual count of more than 100,000 loans at the height of the market to fewer than 60,000 in 2012—a decline of more than 40%, industry stakeholders have been awaiting a recovery in home prices as a means to jump start lending once again as more borrowers will qualify with higher levels of home equity than they have seen over the course of the recession.
Now, it appears that recovery is under way with several months of consistent economic data to prove it. According to the latest data from the S&P/Case-Shiller home price index, prices rose on a national level 7% in 2012. While that gain may not be replicated in 2013, the commonly held perception is that the market is better this year than last year, and will continue on an upward path in the coming months.
Yet the reverse mortgage market, based on monthly data, has not made substantial recovery inroads just yet, and there will be more hurdles for the industry to face in 2013.
“We’re already seeing some home price recovery boosts in reverse, but it will be slow and steady as we’re coming back from a long price decline (that accompanied our volume decline),” says John Lunde, president and co-founder of Reverse Market Insight. “Next hurdle for growth is still the impact of reduced revenue from standard fixed rate going away, after that it’s going to be financial assessment and other changes FHA makes by September.”
Those product changes, if made under the time frame encouraged by the Federal Housing Administration, are likely to present a short-term drag on volume with the long term impact still many months away.
“While home values are slowly coming back, we will need to work through the upcoming HECM Program changes such as loss of the full draw, fixed rate program. Other changes slated prior to August 2013 such as underwriting requirements for assessing financial suitability etc and possible T&I set asides will also need to be measured,” says Jeff Taylor, president of Wendover Consulting.
Once the changes have been made, however, reverse mortgage potential will be well positioned once again, Taylor says.
“Once the industry has digested the program changes and seniors once again look to their home equity to provide access for a line of credit or other financial needs, the industry will be well positioned to serve,” Taylor says.
Written by Elizabeth Ecker
