We may not think of Q3 as having any surprises left for us, but rather than harping on the continued HECM volume move to higher home value areas, let’s shift gears a bit.
HECM refinances are not a new story for anyone who has been reading our newsletter for the past year, and indeed that story is pretty well played out. As you can see from the chart below, the volume of refinances is tapering off and can only be expected to taper further since the perfect setup of increased lending limits and lower interest rates doesn’t look likely to occur again anytime soon.
Two obvious points:
- Refinances are heading down – no surprise to anyone given the factors noted above
- Fixed rate HECMs are taking a proportionate share of refinances at this point, as would be expected since refinancers are the most likely to want to access all the money upfront and thus remove one of the only reasons borrowers would prefer an adjustable product offering lower principal limits (cash to borrowers). Fixed rate accounted for 64% of all refinance transactions last month, and is a good bet to continue heading higher in share, although perhaps not absolute volume.
Beyond the refinance market, let’s look at the same graph for the overall industry:
Again, a few obvious points:
- Overall volume has been stuck at just about the 10,000 loans per month level since home prices peaked and the financial crisis really started hitting hard in 2007
- Fixed rates have been an even bigger story than refinances in 2009, accounting for fully 61% of all HECMs last month
- Despite the dramatic impact of fixed rates and the expected boost from refinances, the industry is still laboring at about the same volume levels achieved in mid-07
The next step in the thought process is equally clear: where do we go from here? Forecasting is devilishly difficult and a source of much anguish, but can be very useful in thinking through the likely scenarios for the coming year and beyond. And since most of our clients are knee deep in the process of planning and budgeting for next year, this seems an appropriate time for the thought process.
We’ll publish a follow up piece by the end of the month with our best thoughts for 2010 and we look forward to seeing all of you in San Diego!
Click the image below for the full report: