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