HECM Endorsements For October 2019
HECM stands for Home Equity Conversion Mortgage which are the only reverse mortgages that FHA insures. They have been the dominant form of reverse mortgage for decades.
Early November 1, 2019, HUD posted the total HECMs endorsed in October 2019 of 3,296. That total is 6.6% higher than the total HECMs endorsed during October 2018 and is 36.2% higher than the total HECMs endorsed during September 2018. The total endorsements for October 2019 are also the second lowest total for any October since October 2004.
HECM endorsements for fiscal years 1990 through 2008 represent the first 19 years of the HECM program and are accounted for in the FHA General & Special Insurance Fund. Those fiscal years take us from years of barely any origination activity through the third (fiscal 2007) and second (2008) best years for HECM endorsements as depicted in the graph above. Currently less than 120,000 of the HECMs endorsed before 10/1/2008 have not terminated (or are not currently in assignment) which means less than 26.2% of those HECMs are still active. The focus of this article, however, is the fiscal years following fiscal 2008 with a special emphasis on projected HECM endorsements for the remainder of fiscal 2020.
The highest year for HECM endorsements was fiscal 2009 with 114,692. Fiscal 2009 was also the first time that endorsed HECMs were accounted for in the FHA Mutual Mortgage Insurance Fund (MMIF). Fiscal years 2010, 2011, and 2012 were fiscal years when the program saw dramatic drops in HECM endorsements. Fiscal 2018 was the final year of a 6 year period of slightly downward sloping, peak to valley, secular stagnation (circled on the graph).
Fiscal 2019 was a difficult year for HECM endorsements when endorsements totaled just 31,274, a 35.3% drop from the total HECM endorsements for fiscal 2018 of 48,359. Worse fiscal 2018 total HECM endorsements were a 12.5% drop from total HECM endorsements of 55,292 for fiscal 2017. It was hoped that this period of stagnation would end with HECM endorsements in the 70,000 range but those hopes were dashed with endorsements of less than half of that amount.
While many in the reverse mortgage industry are hopeful for a good result in HECM endorsements for fiscal 2020, we are almost through 10% of fiscal 2020 (which ends on September 30, 2020) without any indication that this will be the case. If anything, everything points to another fiscal year with HECM endorsements coming in lower than 35,000 (if that). While many industry participants view this outlook as pessimistic, such projections have proven to be too optimistic for 8 of the last 10 fiscal years where the other two fiscal years were understated by less than 5%. Being realistic has not been in vogue for most of the history of the industry.
Of those HECMs that were endorsed after 9/30/2008, only about 365,000 are still active meaning that 46% of all HECMs endorsed in that period have been terminated (or are still in assignment). Soon the vast majority of the fixed rate Standards endorsed the two and one-half years starting in fiscal 2011 will have been terminated (or will be assigned).
The percentage of all HECMs ever endorsed that have terminated (or that are still in assignment) is about 57.2%, leaving about 485,000 still active. It is expected that the last number will grow even smaller over the next few years despite more HECMs being endorsed over those years.
Like all industries where there is no accountability for wild claims we saw a rather mild claim in early fiscal 2011 of reaching 100,000 endorsements by the end of that fiscal year. That was a miss of about 27,000. 36.7% more endorsements would have had to have been produced in that fiscal year to reach that claim. The worst, however, was a claim of 300,000 for fiscal 2018 in early fiscal 2014. What was so significant about that prediction is that the industry fostered that claim with such assurances as an alleged high degree of collaboration among lenders and sufficient marketing money promised that ensured success for that goal. Yet total HECM endorsements for fiscal 2018 did not even reach 17% of 300,000 endorsements. What is worse is that all alleged collaboration completely broke down by early fiscal 2015. This is still something the industry loathes addressing.
Based on early experiences with single unit condo approval, condos will not be much of a growth area in fiscal 2020 for HECM endorsements. If Secretary Carson does as he has affirmed on at least three occasions recently, HECM refinances will end. If that occurs, reaching 30,000 (yes, with just four zeros).
As to proprietary reverse mortgages (PRMs) for the industry as a whole, there is no credible source for verifiable information. As to the continued viability and growth of PRMs, I will let others who claim to have such information provide their insight. Over the last fiscal year, I have heard some interesting claims and (as Cary Grant explained in North by Northwest) expedient exaggerations. Let us hope such exaggerations do not get as carried away as they were, particularly, in late 2006 and most of 2007. They became a source of embarrassment for several years thereafter.
Here is wishing that fiscal 2020 will be much better than indicated.