DBRS Morningstar examines reverse application and conversion trends

Analysts at DBRS offer a look at reverse mortgage application trends

As reverse mortgage applications increased in 2022, originations began to decline, which could suggest that it is now harder to qualify for a reverse mortgage product, according to an analysis by DBRS Morningstar.

In a presentation last month, analyst Joe Morgenstern looked at reverse mortgage market application trends, noting that data from the Consumer Financial Protection Bureau (CFPB) Loan Application Register (LAR) illustrated a divergence between applications and originations from 2018 to 2022.

“Up until 2022, applications and originations shared a fairly proportional increase,” Morgenstern said. “This ultimately led to a fairly stable origination rate trajectory. However, in 2022, we did see applications continue to rise, but the originations remained fairly stagnant. And what this does is it effectively starts to lower your origination or your conversion rate.”

This could mean the pool of qualified borrowers is shrinking, he said.

“This data could suggest that the application qualification is coming down, while marketing efforts are still high,” Morgenstern said. “So that’s one possible indication that this could be telling us.”

The analysis also looked at market penetration by comparing application data with the total senior population by state. What he found was striking data for Utah.

“We can quickly tell that marketing efforts have been centered around mostly the West Coast, likely due to higher home values and higher balances as we’d expect to see,” he said. “Interestingly enough, Utah has by far the highest market penetration, with nearly three-quarters of 1% of all seniors having applied for reverse mortgages in 2022.”

That’s how the data should be interpreted, he said, which offers “a very good indicator of how much of that market is being captured in a particular state.”

While most reverse mortgage marketing is concentrated on the West Coast, overall conversion rates — where applications turn into loans — are generally higher in states like Utah (67.5%), Idaho (67.1%) and Montana (64.9%). This is true even when compared to active states like California (57.3%), Texas (49.3%) and Arizona (58.8%).

Earlier this year, Utah Gov. Spencer Cox (R) signed a bill into law to lower the minimum borrower age for proprietary reverse mortgage loans to 55. Utah is the latest state to allow for proprietary originations for its younger seniors.

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