FHA Outlook for HECM Volume Is Out Of Touch With Reality
According to the FHA’s Outlook report, HUD expects 210,000 reverse mortgages to be issued between October 2008 and September 2009 (FY 2009). That represents a roughly 90% increase in reverse mortgages versus FY 2008.
That would be well and good if it weren’t for the fact that recent data suggests the opposite of HUD’s projections.
Let’s take a look at monthly volumes. To reach the projection of 210,000 reverse mortgages, the industry would have to average 17,500 reverse mortgages per month. In October and November, the final tallies were 10,121 and 7,771, respectively. That means it took the industry 2 months to produce what HUD projected would happen in 1 month.
Combined with projected further declines in property values, I think most industry participants will be happy if 2009 turns out to just be even with 2008, let alone a 90% increase.
Can anyone shed light on why HUD has such a rosy view for 2009?
The original report is here: Outlook Report
December 15th, 2008 at 2:13 am
Here is a thought. Noveber endorsements actually represent Oct 2008 numbers. I only know this because I have been comparing what this report shows from what my companies volume is month by month. The report always lags by a month. On Nov 5th, FHA released their mortgagee letter increasing thelending limit to 417k. So to think that a large number of originators held over files to fund after the increase in limits (especially when many of the counseling agencies were telling clients to wait until Nov 1, forthe increase in FHA limits) is highly likely and would have had a huge affect on Oct numbers which is reflected in the Nov report. We will have a much better idea of true growth volume by end of January.
Lstly you muct remember that 99% of seniors that qualify for this loan do not take it. So even if we have declining values we also have a huge increase in product awareness, so an increase from 100k loans to 200k would still only equate to a 2% market penetration which is very small. Declining values may kill deals, however prduct awareness and acceptance is what will keep this product thriving and growing. Also when a majority of seniors take 30-50% hits to their 401k and investments, reverse mortgages may become the only thing that keeps our seniors afloat in the near future.
December 15th, 2008 at 2:26 am
I think you’re right that there are some variables that are increasing the need/appetite for reverse mortgage (declining retirement portfolios, increasing unemployment, better awareness). But a 90% increase? Over the last 5 years the cumulative annual growth rate has been 45% (but only 6% in 2008) so HUD is basically projecting that 2009 will be the best year for reverse mortgages ever (both in terms of total volume and growth rate).
I would certainly be among those applauding if that happened but I’m not convinced that’s where things are headed. I’ll update the math when the December (November actual) reports are out.