Reverse Mortgage Lenders Have ‘Long Winter’ of Declines Ahead

Issuers of Home Equity Conversion Mortgage-backed securities (HMBS) saw the overall supply drop by $200 million last month, New View Advisors reported — hinting at further troubles to come for the industry at large.

“Reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower principal limit factors (PLFs) for Home Equity Conversion loans effective this fiscal year,” the New York City-based firm noted in its latest analysis.

Total HMBS issuance dropped to $626 million, which represents the lightest month for the secondary market since September 2014. That figure was offset by a little over $1 billion in prepayments, the fifth-highest on record in New View’s calculation. As a result, outstanding supply shrank from $56.4 billion to $56.2 billion.

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“High prepayments and low issuance combined to drive down the total float,” New View observed. “The sixth time HMBS supply has declined month to month, this is by far the largest such shrinkage.”

In its quarterly analysis, released earlier this month, New View warned of a coming decline despite positive signs from top HMBS issuer Reverse Mortgage Funding, which generated $1.1 billion for the first quarter of 2018.

“Unless highly seasoned HMBS becomes the norm, expect much lower volume for the remainder of 2018 due to the new [PLF] curves in effect since October,” the company noted.

For comparison, the most recent set of reverse mortgage endorsement data from Reverse Market Insight showed a drop-off of 17% between February and March, for the lowest industry-wide loan production since July 2017. The Dana Point, Calif.-based RMI also blamed the introduction of new principal limit factors last October 2, which caused a brief surge in endorsements that is now finally waning.

“Now it’s clear that we’re in a post 10/2 world for HECM endorsements,” RMI noted.

Written by Alex Spanko

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  • Hey, I heard one lender declaring over and over that the 10/2 changes were great and HUD only improved the product by implementing them. The double talk in the industry needs to be corrected.

    Lenders needed to speak with one tongue and one voice with one message. Here is where NRMLA could step in and provide lenders with uniform talking points that work for the growth of originations; if the lenders refuse to follow it, NRMLA has ways to humiliate its bad actors.

    Finally both RMI and NVA are speaking the same thing and this time there is little question that it is right. The market is crumbling to a lower level BUT it is NOT going away. If the industry finally recognized that it is in the midst of secular stagnation (or whatever it is), setbacks like those that NVA would be expected rather than scary. It will go away with time.

    I have heard some industry vets saying that we need to work harder. Well, maybe they do but of what I understand about the theory of secular stagnation, suppliers need to find new pockets of demand. When trying to increase sales, it is important to work smart. The old timers sound like Einstein’s definition of insanity, doing the same thing over and over, expecting new results.

    It is not time to get pessimistic but to reach out to new sources of demand. What that is to you may not be new to others but as a whole we should hear talk about new opportunities in areas we have never considered because some are finding new rich veins of demand that few are mining.

  • Was the reduced volume causing this ‘winter of decline’ intentional or is it an unintended consequence? And what other steps may HUD have taken to correct the issue without causing such drastically reduced volume?

  • This doesn’t tell the whole story. Lower PLF’s coupled with the higher upfront MIP and rising interest rates which cut further into the PLF (unless margins are lowered) all add up to much lower volume. Time will tell but it doesn’t look promising.

  • Great comments treverse, Jim and Carmine! Right on as far as the whole story not being told!

    Higher margins, higher swap rates ETC attribute a lot. Higher MIP fees, to me that is not the main culprit here!

    HUD moved to quick in October in my opinion, Ben Carson should have put more thought into making this kind of a move in this environment when he did!

    Are we dead in the water, I don’t think so, if we keep saying we are and thinking we are, we will be, no doubt about that!

    Heck, get over it, live with it until we can get it changed, will NRMLA help? Time will only tell, however, in the meantime, we can all go out there with a positive attitude, find properties that have low loan to value ratio’s on them or no liens at all!

    Find the more affluent borrower, search out the professionals in the professional sector to partner up with. We have enough senior homeowners out there daily turning 62 years of age. We have plenty of equity in seniors that own homes, more today than ever.

    So tell me, why should we accept the fact that we have so many troubles ahead of us in paradise for the rest of the year?

    We still have 8 months to go to change the trend, sorry, that is the way I see it my friends!

    John A. Smaldone
    http://www.hanover-financial.com

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