May Reverse Mortgage Endorsements Surge 215%, Best Total in Over 2 Years

Home Equity Conversion Mortgage (HECM) endorsements surged dramatically upward in the month of May, totaling 5,038 loans and making for the best single monthly total in over two years. This is according to data released by the Department of Housing and Urban Development (HUD) and compiled by Reverse Market Insight (RMI) and New View Advisors.

This figure represents an increase of 214.7% when compared to endorsement figures for April, which recorded only 1,601 endorsements that month.

Last month, HECM endorsements as tallied for the month of April indicated a tanking of the numbers. Shortly after that report was released, reverse mortgage professionals including analysts and leaders at lending organizations asserted that those numbers did not tell the full story, with one CEO explaining to RMD that the figures did not represent the actual volume of loans that were being closed.

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Contextualizing the increase

In its commentary accompanying its HECM Lenders report for May, RMI explains that this blip in the data is indicative of a correction rather than the beginning of a “new normal.”

“Last month we weren’t depressed by incredibly low April HECM endorsement numbers, and this month we look at the figures as catching up rather than some new trend,” said RMI in the commentary accompanying its endorsement report.

This is why RMI’s approach to the data in this instance is different, as the company has chosen to compare the average of April/May to the average of the prior 10 months, since the averaged April/May total is at 3,320 loans and is “under the February reading and well within the range of the past year (although on the higher end),” according to RMI.

By that metric, six of the 10 recorded regions in RMI’s report show an increase, with the Rocky Mountain region leading the way with an endorsement increase of over 26%. The Midwest, Mid-Atlantic and New England regions are not far behind, each with increases above 20% each.

In its tabulation of HECM endorsement figures, New View Advisors comes to a similar conclusion according to the commentary accompanying its HECM Endorsement Analytics report for May.

“A significant portion of this month’s endorsement volume is likely backlog from April due to the slowdown in loan processing caused by the pandemic,” New View writes in its commentary. “During the six months prior to April, average monthly endorsements ran slightly over 3,000.”

Sources of increase, momentum maintenance

While these endorsement figures are encouraging, endorsement data does not often provide a full picture and should be taken in concert with other increases to offer the industry a fuller perspective of the origination landscape. This is according to Michael McCully, partner at New View Advisors.

“As you know, endorsement count is not the best proxy for origination volume; HMBS issuance is,” McCully tells RMD. “HMBS issuance was up 25% in May over April, so ballpark 75% of the endorsement count increase is probably attributable to pandemic related backlog.”

For his part, RMI President John Lunde attributes much of this to a backlog, but does see at least a possibility of an impending “new normal.” Still, it may take a little longer to fully understand the impact that the COVID-19 pandemic will have on HECM endorsements.

“I’d say it’s almost all from the backlog catching up, although the average of the two months put together being on the higher end of prior 10 months’ range suggests we do have a modest growth trend in place still,” Lunde told RMD. “I don’t think we’ve had enough time pass yet for pandemic fueled interest to show up in endorsements. I’d suspect we might see some of that in the case numbers issued figures for April and May when those are released, then in endorsement figures toward June and July.”

In addition to the data being encouraging on its own, some analysts are hearing anecdotal reports about reverse mortgage volume that offers at least some optimism in terms of whether or not this new endorsement spike can at least be maintained.

“[The question of maintaining momentum] is better for originators, but anecdotally we hear volume is up everywhere,” said McCully. “It’s too soon to know whether this is a blip or a long-lasting change in our market.”

When looking at the April/May average as a potentially more representative figure of HECM volume, Lunde does see that as a realistic industry goal.

“I do think the industry can maintain the momentum of the current average level around 3,300 given it’s not unusual for recent volume,” he said. “Low interest rates by themselves should increase volume if all other things are equal, and any pandemic fueled increase in consumer acceptance could be on top of that.”

External factors affecting data

In RMD’s follow-up report that took a closer look at the endorsement drop observed in April’s data, some sources speculated that part of the general decrease in endorsements could at leats be partially attributed to the lack of representation that proprietary reverse mortgages have in the HECM data. McCully isn’t exactly convinced of that, however.

“[That] doesn’t seem likely,” he said. “If anything, private production had a bigger albeit temporary disruption than HECM, as two of four private lenders dropped out of the market in March-May. While some private product certainly eats into HECM volume, there is not a lot of overlap between HECM and private product borrowers.”

Lunde doesn’t see the proprietary obfuscation as particularly likely, either, he explained.

“I doubt April’s low endorsements had much to do with proprietary siphoning off volume. The timing involved would suggest that February/March HECM fundings were being siphoned off by proprietary which has been slowly happening over the past few years, but it’s hard to see a specific reason that those months would have seen a massive surge in proprietary to the level needed to reduce HECM volume by as much as April endorsements fell,” he said.

That theory also seems to be “further minimized” now that May HECM endorsements underscore the idea of an April backlog and May catch up, he says.

As for New View, the company continues to advocate that the industry take a much closer look at another industry metric to take the proverbial “temperature” of the reverse mortgage market and its health.

“The 215% one month change only highlights that endorsement count is a poor proxy for origination volume,” McCully said. “New View Advisors continues to recommend using HMBS issuance as the superior proxy for HECM origination volume.”

Looking at recent months together instead of single outliers in the data is also likely to be helpful for the industry in properly digesting this data, Lunde added.

“I think it’s important that we look at April and May together rather than either month in isolation,” Lunde said. “That’s the clearest takeaway from May’s endorsement we can get right now.”

Read RMI’s HECM Lenders report and New View Advisors’ HECM Endorsement Analytics report.

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  • With all of the excitement about increased HECM endorsement volume for the first six months of this fiscal year, a major fact is being missed. 72% of the increase in total HECM endorsement volume is not coming from either Traditional HECMs or H4Ps. It is coming from HECM refis. Are HECM refi borrowers new to reverse mortgages and more importantly is growth supported by this source sustainable? The answer to that compound question is two big NOs. Worse yet increased volume in Case Number Assignments (CNAs) for March and April 2020 finds over 92% of its source in HECM refis. So while many have told us that COVID-19 and its impact are driving consumer demand in recent months, HUD data does not support those conclusions. Yes, we have to wait about 3 weeks for HUD to provide breakdowns for both HECM endorsements and HECM CNA totals for May 2020, it is hard to believe that HECM refis will not be at the heart of any growth for May 2020. Industry participants seem to be jumping over the facts to reach conclusions that support their bias about how the reverse mortgage market is improving because the COVID-19 situation has caused seniors to be more acutely aware of their financial situation.

    As always the two best indicators of HECM endorsements are Case Number Assignments (CNA) combined with the modified and annualized conversion rate (MACR) for each month. Looking at statistical data only confirms the value of the MACRs. Out of the ninety-six monthly MACRs for the last eight years only one had a Standard Deviation of between 3 and 4; five had Standard Deviations between 2 and 3 with the vast majority with Standard Deviations under 1 and the remainder with Standard Deviations between 1 and 2. That shows that the MACRs are reliable.

    There was once a period in the industry when anecdote mixed with myth prevailed and collaboration was the word of the day. Then suddenly everything fell apart and the myths died down. Today we have new myths. The one myth that stands out is that proprietary reverse mortgage volume caused the HECM endorsement volume for April 2020 to tank.; YET where is the empirical evidence showing that? While the myths about proprietary reverse mortgages back in fiscal 2007 were slightly more credible, those being created today lack la lot of logic, reason, and substance resulting in tales that lack credibility. Today’s myth spreaders for some reason are grasping at straws when proprietary reverse mortgage activity is running better than their forerunners in fiscal 2008.

    New View Advisers is a great service provider to the industry but when it comes to their cry to move to HMBS stats, they are leading the industry in the wrong direction especially since our HECM endorsement volume in the last 7 years resemble the volume we had in the mid and early parts of the aughts decade when there was no HMBS activity. Until fiscal 2007, the industry sold their closed HECMs to Fannie Mae. For now it seems that the best indicator to see how HECM activity is doing is HECM endorsement volume. Over the next two decades that could certainly change particularly if HECM endorsement volume substantially grows.

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