Reverse Mortgage Volume Plummets in April Amid COVID-19 Crisis

Reverse mortgage endorsement volume fell sharply in April amid the COVID-19 crisis that continues to derail the U.S. economy and impact businesses and households in unprecedented ways.

Yet the downturn in Home Equity Conversion Mortgage volume — which posted a 45% decrease to 1,601 loans during the month — does not tell the full story, say industry advisors based on Department of Housing and Urban Development data, with some lenders posting zero closings during April.

The decline comes at a time when many originators report borrower inquiries are up and conversations with financial planners and other referral sources are gaining momentum. The loan volume alone is not the only indicator of market health, says Reverse Market Insight co-founder and president John Lunde in his monthly endorsement report published this week.

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“While we’d normally be very concerned about this level of drop, we have many other reliable indicators that the reverse mortgage business is actually holding up well in the pandemic,” he writes.

Delving deeper into the month’s loan tallies, RMI notes several positive indicators, including an uptick in retail applications in March over February, as well as 50% more applications year over year during March. Further, March fundings were on par with February totals, which marked a significant annual increase.

The data can be used as a point of reference, RMI writes, “… but keep in mind that things aren’t as bad as HECM endorsement numbers show and we’ll likely see a bump back up in endorsements similar to past government shutdown backlogs clearing through the pipeline.”

Financial services advisory New View advisors echoed the perspective around the strong bearing of the COVID-19 crisis on April loan volume, also noting that the investor market for HECM-backed mortgage securities (HMBS) is stabilizing, but not expected to return to pre-COVID levels “any time soon.”

Across the U.S., most regions experienced the sharp declines in reverse mortgage volume, and several lenders didn’t register any endorsements.

“Time will tell whether April’s low endorsement count will be overshadowed by new opportunity to provide HECM loans to seniors, those most affected by Covid-19,” New View writes in its monthly commentary.

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  • “Plummet” sounds like we have reached a new floor much lower than last fiscal year’s HECM endorsement floor and thus seems too rash.

    Does anyone really believe that the pull through rate from case number assignment to endorsement has plummeted? Some may but it seems doubtful.

    What we have more likely seen is a new kind of bottleneck. This is not like the government shutdown that occurred 15 and 16 months ago, and was finally caught up 14 months ago. The primary sources for the current slowdown is due to the impact of a pandemic and also a premium downturn for closed HECMs in the secondary market.

    Anecdotally, one reason for this slowdown is the reduction of premiums being paid for closed HECMs on the secondary market. One branch of a major lender claims that the total UPBs (unpaid principal balances) of applications with case numbers assigned that they have obtained the permission of applicants to hold back (and delay closing) until the secondary market turns, exceeds well over $100 million.

    The second anecdotally related reason is the impact of Covid-19 distancing rules and the need of employees to care for children no longer in school and caring for family members who are at the most at risk from Covid-19 as well as those who have the disease but did not have the need to be hospitalized. The reduced operating staff at lenders and HUD seem to be reflected in the fact that four of the larger lenders (including RMF) had no endorsements all in the same month.

    Many of us believe that there may have been a slight increase in the fallout rate on applications after case number assignment during April 2020 but not nearly to the extent reflected in the 1,601 HECM endorsement count for April 2020. This seems to be more than just a temporary bottleneck but by the end of summer, it is hoped that the severity of the current HECM endorsement bottleneck will have been overcome.

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