HECM Numbers Rising — But Rising Enough?

by Peter G. Miller
November 4th, 2008

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The new year has begun early — at least for the federal government which starts its fiscal year each October 1st. For reverse mortgage borrowers the results for the first two weeks of the new year look like this:

___6,232 HECM applications to date. This is down 11.1 percent from the same period last year.

___4,921 reverse mortgage approvals — up 28.2 percent over last year.

___HUD is planning on 210,000 FHA reverse mortgages during the next 12 months, that’s up from the 112,154 HECMs actually insured last year.

It’s too early in the game to see how reverse mortgage demand will actually pan out during the coming year. Logically it seems reasonable to believe that FHA HECM numbers should go up for two reasons:

First, origination fees have been reduced from a 2 percent flat rate to 2 percent of the first $200,000 of the loan amount, 1 percent of the balance and not more than $6,000.

Second, the maximum reverse mortgage amount has been raised to $417,000 from $200,160 in low-cost areas to $362,790 in high-cost areas.

That said, an increase from 112,154 reverse loans to 210,000 HECMs is quite a one-year jump. The current rate of 118,104 HECMs per year (24 reporting periods x 4,921 loans) won’t come close.

Part of the problem is that while origination fees are down and loan limits are up — that’s the good news, property values in most markets have fallen. That means less equity to finance or refinance with a reverse mortgage.

Alternatively, what other financing is available to people age 62 and above? Lenders have tighten standards for forward loans to the point where even people with good credit are having trouble getting a mortgage. In an environment where private-sector loans are drying up it may well be that reverse mortgages will find a new level of popularity.

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