Falling Conversion Rates Lead to Heavy Reverse Mortgage Losses

Reverse mortgage volume sank sharply in September to 3,706 loans—a 10.1% decline from August and marking one of the lowest months for endorsements in recent memory, according to Department of Housing and Urban Development data reported this week.

Across almost all geographic regions and all but one top-10 lender, Genworth Financial Home Equity Access, endorsements fell during the month. The decline can be attributed at least in part to a growing trend, RMI says: lower conversion rates from case number assignment to loan closing.

“What becomes obvious when we look at the trends in the basic endorsement chart is that there’s an increasing gap between case numbers issued and endorsements,” RMI writes. “This is the conversion rate issue that FHA has pointed out at past industry events, demonstrating that the exited lenders as a group were more efficient at converting case numbers issued into endorsements than the remaining lenders collectively.”

Those conversion rates are volatile, RMI notes, but still present a strong downward trend, when averaged across months amounting to a drop from 82% in December 2010 to less than 60% from March to May 2012.

“So while steady increases in case numbers issued are undoubtedly good news for the industry, unfortunately the decline in conversion rates means it’s an uphill battle to get back to growing year over year on an endorsement basis,” RMI writes. “The 2.1% increase over August 2011 will be entirely offset by the decline in conversions, so we’ll have to wait til 2013 for endorsement growth even if case numbers issued continues to grow.”


View the report.

Written by Elizabeth Ecker

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