June Reverse Mortgage Volume Remains High, HMBS Could Indicate Stronger 2020

Home Equity Conversion Mortgage (HECM) endorsements fell 16.5% in June, however given the fact that the figure recorded in May was the highest the industry has seen in two years, the overall drop is modest and means that the June figure is still the second highest monthly total recorded in a year. Additionally, HECM-backed Securities (HMBS) issuance may indicate a stronger full year of business in 2020 when compared with 2019.

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.

HECM endorsements

HECM endorsements clocked in at 4,209 for the month of June, a relatively modest drop compared to the inflated figures for May, but still a demonstrable increase when compared to the 1,601 endorsements in April, and the 2,913 endorsements in March.

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“June was 7.4% above the next highest month (January) and underlines the increased activity many lenders have been discussing since shortly after the pandemic started,” writes RMI in its commentary accompanying the June data.

The total recorded in June indicates that endorsements are continuing an upward trend compared with the averages recorded prior to the outbreak of the COVID-19 coronavirus pandemic, according to New View Advisors.

“June is lower than May’s 5,038 count, but as mentioned previously the last two months’ volume figures have been skewed by disruptions caused by COVID-19,” New View writes in its HECM Endorsement Analytics commentary. “During the six months prior to the pandemic, average monthly endorsements ran slightly over 3,000 units per month.”

Still, there were reductions indicated in the endorsement data, including reductions in activity in all regions save for one, and 8 of the top 10 reverse mortgage lenders also experienced reductions in endorsements when compared with their totals in May.

For the two lenders that experienced gains, Mutual of Omaha Mortgage saw a 10.6% jump to 276 loans, constituting a second consecutive monthly record for the lender according to RMI. HighTechLending, meanwhile, recorded a 604% spike to 169 loans, a figure that “far exceed[s] any two month total for the company in the last year,” RMI said.

HUD has also released its monthly “snapshot” report for May, which indicates stronger activity on a more localized level according to New View Advisors.

“The report echoes last month’s Endorsement Summary Report and displays a strong rebound in activities from April to May across the board,” New View writes.

Volume for HECM refinances also increased, reaching 891 in June which is the highest monthly total since January 2018, and refinance volume accounts for “about 18%” of all endorsements, New View said.

HMBS issuance

The production of new HMBS totaled approximately $766 million in June as new production remained strong, helped along by an observed recovery in the capital markets according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.

HMBS issuance also indicates to New View that the full year dollar amount of total HECMs originated is on track to exceed figures recorded last year, McCully says.

“Based on HMBS issuance, we are projecting more than $9 billion of HECMs originated in 2020, up from $8.3 billion in 2019 and approaching the $9.6 billion issued in 2018,” he tells RMD.

Based on HMBS issuance, totals appear to be indicating better performance based on the June data, according to New View.

“HMBS issuers essentially equaled May’s strong total and surpassed May in new production issuance. 82 pools were issued in June,” New View writes in its accompanying commentary for June’s HMBS data. While HECM endorsement data indicates a backlog that may obfuscate the performance metric, there is no such limitation on HMBS issuance data according to New View Advisors partner Michael McCully.

Additionally, these issuance totals appear to indicate something more longstanding, McCully says.

“There is no backlog if you look at HMBS issuance,” McCully tells RMD in an email. “June production of original HMBS loan pools equaled $593 million, a new monthly high since Mortgagee Letter (ML) 17-12. Based on the steadily increasing monthly new issuance totals, and reported record application volume, we believe this is a trend.”

ML 17-12 was released on August 29, 2017 and announced the reduction in reverse mortgage principal limit factors (PLFs) and changes in mortgage insurance premium (MIP) rates which went into effect that October 2.

Read the June 2020 HECM Lenders report at RMI, and both the HECM Endorsement Analytics report and HMBS report at New View Advisors.

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  • “…the overall drop is modest and means that the June figure is still the second highest monthly total recorded in a single year.” Nonsense. Perhaps Chris meant to say in this fiscal year (rather than “in a single year”) but that is not what is written.

    The fact is the June 2020 HECM endorsement total is the second best month for HECM endorsements since March 2018. March 2018 was an unusual month to say the least since HECMs with case numbers assigned (CNAs) in September 2017 (the month for the highest total ever for CNAs in a single month of 20,400) were still being processed as well in March 2018.

    The second highest number of HECM endorsements for “a single year” was recorded for the month of March 2009 with a total of 11,261 HECM endorsements. The highest monthly total ever reported by HUD is April 2009 with 11,660 HECM endorsements. Those months had the second and highest totals for any month in a fiscal or calendar year, ever.

    Considering CNAs for March, April, and May 2020 of 16,009 and the current modified and annualized conversion rate for HECMs in June 2020 of 66.6% the only reasons that total HECM endorsements for this fiscal year will not exceed the total of 31,274 HECM endorsement for fiscal 2019 is another pandemic that causes major disruptions in endorsing closed HECMs at HUD or some other act of God. The total HECM endorsements for the first three quarters of fiscal 2020 is already 29,660.

    So if 29,660 is added to the already closed HECMs that will complete the endorsement process before 10/1/2020 of the expected 10,600 plus HECM endorsements then the total HECM endorsements for this fiscal year will be over 39,000, if not, over 40,000.

    Yet it seems none of the vendors above are willing to predict the number of HECM endorsements for this fiscal year other than saying: “Additionally, HECM-backed Securities (HMBS) issuance may indicate a stronger full year of business in 2020 when compared with 2019.” Perhaps that explains why the industry and HUD holds on to HECM endorsements as the best way of comparing HECM production from one year to the other.

    “During the six months prior to the pandemic, average monthly endorsements ran slightly over 3,000 units per month.” Which six months are those? According to even Wikipedia, the first recognized case of the pandemic in the US was reported on January 20, 2020. “The Trump administration declared a public health emergency on January 31, then on February 2 began to prevent the entry of most foreign nationals who had recently traveled to China,.” The first known US deaths from COVID-19 occurred in February 2020. By February 20, the CDC was warning about local outbreaks throughout the country. A national emergency was finally declared on March 13.

    The only six month period before something substantial occurred in the US related to the pandemic that had an average of over 3,000 HECM endorsements per month was the declaration of a national emergency. So why do they make us guess?

    It is true that “refinance volume accounts for ‘about 18%’ of all endorsements” but it is also true that HECM Refis themselves accounted for 74.46% of the increase in total HECM endorsements of 4,213, when comparing endorsement totals for the eight period ended May 31, 2o20 to the endorsement totals for the same eight period for fiscal 2019. Traditional HECMs came in at 22.17% while H4P came in at just 3.36% .

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