Reverse Mortgage Volume Down 31% in FY 2010, Analyst Optimistic for 2011

The last month of the Department of Housing and Urban Development’s FY 2010 may have ended on a low note − only 5,966 HECM endorsements, down 10.2% from August −  but a new report from Reverse Market Insight reveals an optimistic outlook for 2011.

For the federal government fiscal year, 79,096 reverse mortgages were endorsed during 2010, down 31.1% from FY 2009.  However, with new products available and a growing potential customer base, the RMI forecasts 95,000-100,000 units for FY 2011.

While the release of the HECM purchase came with lots of high hopes, execution of the product has been anything but impressive.  Reverse mortgage lenders endorsed approximately 1,000 of the loans in calendar year 2009 and volume has been flat or slightly down this year according to RMI.

The company said it expects near term opportunities for growth to be small, when home values rebound, volume could increase.  “Further volume growth for HECM purchase may be linked more strongly to home price appreciation and expectations than other niches of the reverse mortgage business, even beyond the distribution channel challenges for lenders,” said John Lunde, President of RMI.

The HECM Saver is where RMI sees the most opportunity, estimating it could account for 20% of all production next year.  To reach this client, lenders will need to develop and use established relationships with financial advisory professionals according to the report.

The success of the product “is likely to be almost entirely dependent on lenders’ distribution channel penetration success and customer product acceptance,” said RMI.  Unlike the HECM for purchase which requires building new relationships with builders and developers, many lenders have already put in place “multi-year efforts to reach financial advisory professionals.”

Because of the existing relationships, RMI said the HECM Saver will get off to a much faster start than the HECM for purchase and has the potential to produce greater unit volume than HECM Standard/Traditional in five years.

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