September Reverse Mortgage Volume Remains High, Securities Issuance Logs Another ‘Banner Month’

Home Equity Conversion Mortgage (HECM) endorsements remained relatively stable at recently-high levels in September of 2020, recording a drop of only 1.75% to 3,937 loans. This marks the first time since May that HECM volume fell below 4,000 loans, but still remains well above numbers observed between January and April of this year according to data compiled by Reverse Market Insight (RMI).

Additionally, the production of new Home Equity Conversion Mortgage (HECM)-backed securities (HMBS) recorded another “banner month” in September, recording $883 million in HMBS issuance, a slight increase from the $859 million HMBS issuance figure recorded in September, according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.

HECM endorsements slow, but only slightly

The 1.7% drop in HECM endorsements overall saw increased reverse mortgage activity in only one recorded region of the country – the Mid-Atlantic – which rose from 169 endorsements in August to 191 in September. Half of the top 10 lenders also recorded increases in volume, with the largest increases being reserved for Austin, Tx.-based Open Mortgage (32.6% to 236 loans), Finance of America Reverse (23.9% to 394 loans) and Liberty Reverse Mortgage (6.7% to 256 loans).

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While September’s endorsement total appears to indicate a very slow downward trend when taken in concert with August’s data, the overall volume reduction does not appear to be one that should be concerning for the reverse mortgage industry at this time. This is according to John Lunde, president of RMI.

“I would say the amount of decline here is small enough to not be a concern at all,” Lunde tells RMD in an email. “Combined with the lumpiness of endorsement data, I wouldn’t read much into that in terms of ‘cooling off’ from prior months other than saying it doesn’t seem like we’re back to the massive growth days from 2000-2008, but I also don’t think anyone is expecting that.”

While the secondary market activity and endorsement data are proverbial “apples and oranges” when measuring the health of the reverse mortgage industry, the impact of the recently-announced shortened timetable for the employment of the LIBOR index for adjustable-rate HECMs could have a potential impact on volume totals as we approach the end of the year, Lunde says.

“LIBOR is going to be a tricky transition in many ways, but the first step is probably going back to CMT as the base index for new loans given GNMA’s recent announcement,” he says. “It wouldn’t surprise me to see a little rush to get LIBOR loans done before the deadline, but I don’t think it will be a huge effect given the risk of being stuck with a LIBOR loan that can’t go into HMBS.”

Full year 2019 volume sat at 32,482 HECM loans endorsed, based on RMI data from January, 2020. In terms of where things may end up when the current year ends, Lunde anticipates higher full-year volume than 2019, and potentially higher year-end volume than was seen in 2018.

“I still expect we’ll see somewhere around 45,000 HECM endorsements for 2020,” Lunde shares.

HMBS issuance sees another ‘banner month’

While the $883 million of new HMBS issuance signifies another robust month of new production, the news about the impending end of the LIBOR index’s use for adjustable-rate HECMs nonetheless cast a bit of a shadow onto the secondary market, according to New View Advisors.

“[September issuance was] overshadowed by Ginnie Mae’s announcement ending LIBOR as an index for new HMBS pools backed by first participations of HECM loans,” New View wrote in its commentary accompanying the issuance data. “Helped by a recovered capital market and low interest rates, HMBS issuers continued a streak of robust production. 79 pools were issued in September.”

Still, while specifically new production growth has slowed slightly, the industry is still seeing record production months, according to New View Advisors Partner Michael McCully.

“Until the recent Ginnie Mae announcement regarding LIBOR, there was no reason to believe new origination volume would slow,” McCully told RMD in an email. “Even now, with the announcement, it is likely there will be a short-term surge of volume, at least until December.”

Economic conditions stemming from the COVID-19 coronavirus pandemic remain challenging, which may affect the strength of new production in the future. However, the initial economic shock stemming from the pandemic saw a recovery in the capital markets, which led to some normalization of reverse mortgage production, the firm writes.

“HECM production steadily recovered, and now new production of HMBS exceeds its long-term average range of $500 – $600 million,” the commentary says. “Helped not only by historically low interest rates, but also lower default rates and the reemergence of proprietary loans, the reverse mortgage market is stronger than ever. However, this strength may soon be challenged by economic conditions and the transition out of LIBOR.”

Similarly to the track of HECM endorsement volume, New View asserts that HMBS production totals are “on track” to best figures seen in 2019, and may also overcome the figures seen in 2018, and could even be within proverbial “striking distance” of 2017 figures if issuance remains high.

“Assuming the industry issues $900 million of HMBS per month in October, November, and December, total industry issuance will be $10.3 billion in 2020, just shy of 2017’s $10.5 billion,” McCully tells RMD.

Production of new, original loan pools stood at $693 million in September, outdoing the monthly performance for other months in 2020 and handily outdoing the new production figure one year ago, the commentary notes.

“September production of original new loan pools was about $693 million, compared to August’s $666 million, July’s $691 million, $593 million in June, $586 million in May, $470 million in April, $455 million in March, $501 million in February, and a mere $393 million in September 2019,” the commentary reads.

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

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