Major Lenders Buck April Endorsement Dive With Big Gains

Home Equity Conversion Mortgage (HECM) endorsements fell by 45% in the month of April 2020, for a total of 1,597 loans according to the latest HECM Originators report from Reverse Market Insight (RMI). The fall was led by the wholesale endorsement segment of business, which experienced a decrease of 47.8% that month, while retail levels recorded a smaller — though still substantial — decrease of 42%.

Seven of the top 10 lenders performed better than the majority of the industry by posting volume growth, according to the data. The increases were led by Open Mortgage, posting a 49% increase in total volume led by an 83.4% increase in its retail volume and a 20.7% increase in its wholesale volume. Also performing well was Fairway Independent Mortgage Corporation, which only offers loans on a retail basis but nonetheless posted a month-over-month increase of 47.9%.

The growth leaders were followed by Longbridge Financial with an increase of 22%, Liberty Reverse Mortgage with a rise of 16.1%, Synergy One Lending/Mutual of Omaha Mortgage with an increase of 12.8%, along with Reverse Mortgage Funding (RMF) and American Advisors Group (AAG) each posting growth in the single digits.

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As noted in previously-released data, April reverse mortgage endorsements noted a sharp, significant drop amid the general economic turmoil stemming from the COVID-19 coronavirus pandemic. While the data noted a sharp month-over-month decline, industry analysts at both RMI and New View Advisors along with leadership at some lenders separately advised RMD that the data did not tell the full story of the health of the reverse mortgage business.

“We already know that April HECM endorsements dropped off a cliff and recovered in May, which strongly suggested that April’s volume had a lot of other factors than a drop in HECM lending behind the decline,” writes John Lunde, president of RMI in the commentary accompanying the latest HECM Originators report.

May data revealed endorsement tallies that had shown their best performance in over two years, surging 215% to a total of over 5,000 loans.

Lunde attributed 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, he said. A fuller picture may emerge of May’s performance once the divide between retail and wholesale endorsements becomes clearer.

Lunde previously detailed for RMD that the HECM Originators report is useful in seeing the splits in and health of the retail versus wholesale channels, which helps to illustrate how lenders are doing from a more individualized and channel-specific perspective.

Read the HECM Originators report at RMI for specific breakdowns and more regional performance data.

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  • The story fails to address two elephants in the room.

    For months now, the industry has tried to make it seem that grow in this fiscal year is coming from sustainable sources such as referral sources and new interest from consumers. Rather than agreeing with these shallow, conclusions, it behooves us to take a deep dive in HUD released data breaking down the endorsements and Case Number Assignment into the following three categories: Traditional HECMs, H4Ps, and HECM refis.

    In the seven months ended April 30, total increase in H4P endorsements during this fiscal year over the same period last year was just 41 endorsements and in comparing Traditional HECM endorsements between those same time periods, there is a loss of 551 endorsements. The only bright spot was HECM refis which are up 2,391 endorsements.

    So who is eligible to obtain HECM refis? That is right, HECM borrowers. Few if any refis come from a referral source and absolutely none come from new interest from consumers who do not already have a HECM. In all twelve months of fiscal 2019, total HECM refi endorsements were just 1,688. So far in the seven months of fiscal 2020, total HECM refi endorsements in just the first seven months of this fiscal are 94% higher at 3,281. That rate of growth can only get greater throughout the remainder of this fiscal year. Two of the four months in Case Number Assignments (CNAs) that will most likely be fully processed before the end of this fiscal year show that 93.6% of the growth in CNAs during those two months comes from HECM refis. Another month shows an increase of 70.7% but the data for the last applicable month has yet to be posted.

    With expected interest rates at their current lows, it is doubtful if we will see much in the way of new HECM refi business next fiscal year and for some time to come. There are some hard working and diligent originators in this industry who when HECM expected interest rates drop, do all they can to drum up refi business.

    So it seems as to HECMs, all of the new interest we have been hearing about has not resulted in much growth in HECM endorsements on an industry wide basis. The key to growth in the first seven months of this fiscal year comes from HECM refis. This comment does disagree with individual lenders who are seeing some growth from referral sources or new interest in HECMs from those who have never had a reverse mortgage but as to the industry overall, the numbers are in and the growth is not coming from a sustainable source.

    Before the end of this month, HUD should report breakdowns for the endorsements and CNAs during May 2020. With that data, reasonable projections for fiscal 2020 should be available. Even right now, it is hard to imagine that total HECM endorsements for this fiscal year will reach 40,000, meaning that a very reasonable and rational conclusion is that over the next several fiscal years a new wave of stagnation in HECM endorsement growth could be set off.

    So the two elephants in the room not addressed in the article. Not only is there 1) the impact of HECM refis on current and future HECM growth but also 2) the likelihood of a new period of stagnation for HECM endorsement growth. The notion of real and sustainable growth from referral sources and new interest from consumers who do not have reverse mortgages during fiscal 2020 is the unrealistic dreams of optimists who are not familiar with HUD data. It is understandable, reasonable, and rational that two vendors to the industry would avoid providing any real insight into these two elephants.

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