With interest rates on the rise and loan volumes down year-over-year, traditional home lenders are taking a hard look at adding reverse mortgages as a way to replace lost business.
Traditional mortgage lenders' quarterly loan volumes are 19% lower than a year ago, and depending on the extent to which they rely on refinancing, they could be facing even steeper production declines. Refinance volumes are 34% lower than they were in the fourth quarter of 2016, according to Attom Data Solutions.
In addition, profit margins in traditional mortgage lending are lower than they were 12 months ago, according to the Mortgage Bankers Association. The average mortgage lender generated a net gain of $237 per loan in the fourth quarter of last year, down from $535 per loan in 4Q 2016.
All this makes adding a new product line increasingly attractive as a business development tool.
But there is a lot that lenders considering originating reverse mortgages for the first time should make sure they know about the product before they take the plunge.
The Home Equity Conversion Mortgages that the Federal Housing Administration makes available to borrowers 62 and older have pros and cons that have to be carefully weighed.
From purchase mortgage potential to challenges for loan officer productivity, reverse mortgages offer traditional lenders a mix of risks and rewards that the following seven statistics illustrate.
This HECM market data comes from Stratmor Group's presentation at a recent conference by technology provider ReverseVision, and several other private and public information sources.
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Top 10 market share: 69%
Reverse mortgage lending is concentrated, but not to the same extent the traditional mortgage market is, according to Home Mortgage Disclosure Act and Reverse Mortgage Insight data compiled by Stratmor. The top 10 lenders in traditional home lending control more than 83% of the market.
HECM for Purchase loans make up just 15% of the reverse mortgage market based on units, according to a recent Stratmor survey of 120 bank and nonbank lenders. That's low compared to purchase lending in the traditional mortgage market, but suggests this segment of the reverse mortgage market is growing.
Annual claims paid: $5 billion
While FHA insurance helps protect lenders from credit concerns, claims paid out on the HECM program are on the rise, and lenders are still exposed to reputational risks and other liabilities when seniors default of these loans.
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Nonbank share: 94%
Nonbank independent mortgage companies dominate the top 100, according to according to HMDA and Reverse Mortgage Insight data compiled by Stratmor.
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Share of LOs that originate a loan: 41%
Less than half the loan officers authorized to originate reverse mortgages actually do, according to Stratmor's survey.
Latest month's HMBS volume: $1.5 billion
HECM mortgage-backed securities are attractive to borrowers for reasons that include their low prepayment rates, so when origination volume is available, the securitized market is quick to snap reverse mortgages up.
While some industry forecasts predicted origination volumes would fall 7% quarter-to-quarter in 4Q, early earnings numbers from Wells Fargo, JPMorgan Chase, Citi and PNC Bank show they were down just 3% when purchased loans are excluded.