Reverse Mortgage Market ‘Stronger Than Ever,’ July Data Shows

The production of new Home Equity Conversion Mortgage (HECM)-backed securities (HMBS) totaled approximately $1.42 billion in July as continuing capital markets recovery and low interest rates fueled strong new production and a large seasoned pool, making for the highest issuance level since February 2018. This is according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.

Additionally, the U.S. Department of Housing and Urban Development (HUD) recorded 4,256 HECM endorsements in July, a figure which outpaced last month’s total of 4,209 but didn’t reach the record high recorded in May. However, indications for the May data pointed to a backlog of endorsements caused by the general disruption of the COVID-19 coronavirus pandemic.

A number of larger economic factors have affected the higher level of HMBS issuance, particularly since new rules handed down by the Federal Housing Administration (FHA) in October, 2017 resulted in reduced reverse mortgage business activity, New View writes in its commentary accompanying the data.

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“HECM production steadily recovered [since the October 2017 changes], and now new production of HMBS exceeds its long-term average range of $500 – $600 million,” says New View. “Combined with the dramatic fall in default rates and the reemergence of proprietary loans, the reverse mortgage market is stronger than ever. However, this strength may still be challenged by changes in future economic conditions and the transition out of LIBOR.”

Increased product interest corroborated by data

Increased interest in the reverse mortgage product category has been reported anecdotally by people all across the reverse mortgage industry, from originators up through company leaders based on conversations with RMD. As HMBS issuance has continued on an upward trend, this higher level of production as an indicator of industry health was telegraphed previously according to Michael McCully, partner at New View Advisors.

“[Issuance at this level was] very plausible [30 days ago],” McCully said in response to RMD. “We have seen a steady upward trend in HMBS issuance all year, and anecdotal evidence of record or near-record applications and new originations from lenders.”

The steady upward trend in issuance observed in July paints a generally positive picture of the industry’s performance for the remainder of 2020, McCully added. The transition away from the LIBOR index may still be an unsettled factor, but other indicators are positive.

“Other than event risk, e.g. transition away from LIBOR, a sudden drop in home values, etc., we see the trend continuing [through 2020],” McCully described. “At this pace, expect to see $7 billion or more of new originations in 2020. That does not include tail issuance, or issuance of highly seasoned pools.”

July data as a sign of industry health

When specifically centered on the HECM endorsement figures, the level of interest reported by industry players coupled with the performance data shows that the reverse mortgage business is displaying notable activity when compared with the way the data was trending at the beginning of the year, according to John Lunde, president of Reverse Market Insight (RMI).

“I look at the July endorsement figures as showing continued volume and growth at a significantly higher level than prior to the pandemic,” Lunde told RMD. “There could still be some catching up involved with paper endorsement files based on HUD comments at the NRMLA virtual meeting last month, but there is no doubt at this point that industry volume trends are healthy.”

The growth observed in the July data also, “lend[s] further credibility to the increased volume levels since initial pandemic slowdowns in endorsement processing for March-April were overcome,” Lunde wrote in the HECM Lenders report published at RMI.

In terms of whether or not industry stakeholders should be generally encouraged by HMBS issuance data as an indicator of broader industry health, signs appear to point in that direction, McCully explained.

“Low interest rates, well-functioning capital markets, stable home prices, effective financial assessment, and a renewed interest in aging in place by borrowers due to the pandemic all point to renewed health in our industry,” he said.

Looking ahead

If New View’s projections for the dollar amount of new originations holds true for 2020, it would indicate a new record for the broader business in the industry that followed the introduction of the Financial Assessment, McCully said. This is an important piece of information to note in order to properly contextualize the activity being seen in the business.

“The annualized $7 billion of new issuance would be a post-Financial Assessment calendar year record,” he explained. “The all-time high water mark for industry originations was $15.9 billion in FY2009. That was before Financial Assessment, and the lowering of PLFs that occurred for FY2010.”

Production of original new loan pools in July reached $691 million, a larger figure in comparison with each previous month in 2020 and a significant increase compared to original production recorded at the same time one year ago, where original production totaled only $321 million, says New View.

Additionally, HECM endorsements seem to be on track to end 2020 on a higher note than has been observed in the last few years, according to Lunde.

“I’d expect that we’ll end the year in the range of 44,000-50,000 endorsements for HECM,” he said. As a point of comparison, FY 2019 HECM endorsements totaled 31,274, while FY 2018 recorded 48,359 according to HUD data.

Read the July 2020 HMBS Issuance report at New View Advisors, and the HECM Lenders report at RMI.

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  • The article states HUD: “…recorded 4,256 HECM endorsements in July, a figure which outpaced last month’s total of 4,209 but didn’t reach the record high recorded in May.” May 2020 only had 5,038 HECM endorsements. The highest May for total HECM endorsements was May 2007 with 10,409. The total HECM endorsements for May 2020 are certainly the highest for this fiscal year (at least so far) and they are the highest such total since February 2018.

    Then the following claim was made: “‘…the reverse mortgage market is stronger than ever.'” Many of us feel the industry was much stronger when both Wells Fargo and Bank of America were originating reverse mortgages back in fiscal years 2007-2009, especially when B of A was offering its TIP (the Independence Plan) proprietary reverse mortgage and Fannie Mae was still offering Home Keepers.

    The following is odd: “We have seen a steady upward trend in…anecdotal evidence of record or near-record applications and new originations from lenders.” LEXICO.com cites unreliable, and based on hearsay as synonyms for anecdotal. If there were record or near-record applications that is not reflected in case number assignments nor are HECM originations all that large. As to proprietary reverse mortgages their numbers are the stuff of urban legend (another synonym for anecdotal).

    It is nice to read that there is finally some recognition (from those focused on HMBS activity) of the detriment that financial assessment has been to HECM endorsement activity in declaring: “’The all-time high water mark for industry originations was $15.9 billion in FY2009. That was before Financial Assessment, and the lowering of PLFs that occurred for FY2010.’” It is past time to revisit financial assessment. financial assessment has been and remains a draconian drag on industry growth. We need some type of financial assessment BUT not what we have. Not providing meaningful input to HUD in constructing financial assessment is probably one of the three top failures of the industry and NRMLA’s Servicing Committee in particular.

    Perhaps one of the most interesting comments was the following: “’…we’ll end the year in the range of 44,000-50,000 endorsements for HECM….’ As a point of comparison, FY 2019 HECM endorsements totaled 31,274, while FY 2018 recorded 48,359 according to HUD data.”

    It is far more likely that total HECM endorsements for fiscal 2020 will end up in the 40,800 to 41,200 range and for the calendar year 2020 the total should be no more than 45,000. I sense some exaggeration in the article’s exuberance.

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