When Home Values Stop Falling, So Will Reverse Mortgage Volume

While the number of baby boomers turning 65 grows at 10,000 per day according to AARP, the growth of reverse mortgages hasn’t followed the soaring number of older Americans during the last couple of years.

After growing from 157 units in 1990 to 114,692 during fiscal year 2009, the industry has seen volume decline for the first time. In 2010, lenders endorsed 79,106 units during the fiscal year and 73,131 in 2011 according to data from the Department of Housing and Urban Development. Some say better times may be just around the corner, but a lot of that improvement hinges on home values.

“[The growth of reverse mortgages] is really dependent on the amount of equity a borrower has in their home,” said Scott Stern, CEO of Lenders One, a national alliance of mortgage bankers based out of St. Louis, Mo. “As the amount of equity a senior homeowner has deteriorates, so does the value of reverse mortgages.”

According to data from CoreLogic, home prices fell 4.7% nationwide in 2011 and no one is expecting any drastic increases in 2012. However, there are some reasons to be optimistic.

“The time is right in 2012 for prices to begin growing again and housing affordability will put a floor under any further significant declines in 2012,” according to CoreLogic’s MarketPulse report published in December 2012. “Indications based on the latter part of 2011 are that both the broad economy and the housing market are moving toward positive growth in 2012.”

Assuming that trend happens during the next year, “2012 and 2013 will provide a good marketplace [for the industry] and an encouraging time for companies who are looking to get into the space,”
says Stern.

But even with demographics in the industry’s corner and the possibility of home values bottoming out, there are still changes getting people into the business according to industry participants.

“If you’re going to do reverse mortgages, it must be done as a specialty,” he says. “You can’t do it as just an offshoot of the mortgage business. It does take a commitment of time, resources and money,” says Stern.

Of roughly 200 Lenders One members, Stern said about a quarter of them are doing substantiative reverse mortgage volume. “The members we work with who have committed the time and energy have found it can be a very good business.”

“Overall, I’m bullish on the [reverse mortgage] space,” he says, “anyone who is committed to the business could do very well in the next five years.”

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