Home Equity Conversion Mortgage (HECM) endorsements have hit the lowest monthly total in 18 months, according to the latest Reverse Market Insight (RMI) report.
HECM volume dropped 12.7% in June from May, to 3,927 loans. In December 2012, 3,912 HECM loans were issued.
“There’s a distinct possibility in the next few months we could go below the trough from that era of 3,706 loans set in September 2012,” RMI says. “If that were to happen, we’d be back at levels not seen since 2005.”
However, the Department of Housing and Urban Development’s new principal limit factors (PLFs) that raise the PLFs for most older borrowers at present interest rates is good news for the reverse mortgage sector.
The shift in the latest tables adjust depending on age and rate, resulting in different impacts versus the 2013 PLFs. PLFs increase in a lower interest rate environment, whereas they will decline materially as rates rise.
For those on the younger end of the age spectrum, PLFs are reduced slightly versus the 2013 tables. At an interest rate of 5%, they increase for those who are 64 and older. At an interest rate of 6%, those who are 78 and older will see greater principal limits versus the previous table.
“That gives back a small piece of the reductions in principal limits that have played an outsize role in shrinking industry volume over the past six years,” RMI says.
At the same time, however, reduced PLFs for borrowers as 10-year interest rates rise mean reverse mortgages are less of a business hedge against reduced forward mortgage refinance volumes in the same scenario.
American Advisors Group continues to hold the No.1 lender position at 1,008 HECM units in June, although that number is down from 1,382 units in May, the report shows.
Overall, industry growth is going to be linked to lenders’ ability to penetrate the home purchase market more so than at present, RMI says, adding that transforming the perception of reverse mortgages to be seen as a valuable financial tool is key to expanding its use by home owners.
Read the full report here.
Written by Cassandra Dowell