After a banner year, reverse mortgage production has fallen sharply this year, according to figures released last week by the Department of Housing and Urban Development.
In the government's fiscal year that ended Sept. 30, lenders wrote a record 114,641 HUD-insured reverse mortgages. For the first six months of the current fiscal year, originations totaled 41,375. At that pace, production for the year would be about three-quarters what it was the year before.
Erica Jessup, the housing program policy specialist in HUD's office of single-family housing who runs the Home Equity Conversion Mortgage program, said the lending pace has slowed every month since November.
In March, 5,800 reverse loans were originated, an annual run rate of fewer than 70,000, Jessup said at a National Reverse Mortgage Lenders Association conference in Philadelphia last week.
Part of the fall-off, she said, is directly attributable to the fact that HUD on Oct. 1 effectively reduced the amount that senior citizens could borrow against their homes by roughly 10%.
Also, appraisals are coming in lower now than in previous years, meaning owners have smaller nest eggs to borrow against, Jessup said.
And like the trade group that held the conference, the HUD official attributed lower production figures to consumer misunderstandings, a fact she said is brought home to her by the number of complaints and questions she fields as HUD's "point of contact" for origination inquiries.
The HUD official also reported that, on average, borrowers' ages are coming down as their initial principal limit rises. And she said single men seem to be embracing the product at a greater rate.
So far in fiscal 2010, the average age of borrowers is 73, down from nearly 77 about 20 years ago. And nearly 22% of all borrowers were single males, up from less than 17% two decades earlier.
"Females still dominate, but males are more accepting now than ever before," she said. "We're starting to see younger individuals, too."
Since Fannie Mae switched to a "live pricing" strategy, the makeup of reverse loan production has changed dramatically. (Lenders used to negotiate pricing contracts with Fannie that expired every 60 days. In November 2008, Fannie replaced this manual process with an electronic one in which price commitments are issued for anywhere between two and 90 days and vary according to how much volume a lender promises.)
In the first half of fiscal 2009 (which began in October 2008), 97% of the originations came with adjustable rates. For the same period in the current year, 33% are ARMs.
Also, the most popular ARM index has shifted from the one-year, constant maturity Treasury index — 87% of reverse ARMs last year — to the one-month London interbank offered rate, used on 96% of reverse ARMs so far this year.