Home Equity Conversion Mortgage (HECM) endorsements in January recorded a very strong increase at the beginning of the year, rising 10.8% to 4,539 loans. This makes January 2021 volume the highest that the industry has seen since May 2020, which marked an explosive increase in volume to over 5,000 loans. January also marks a continued uptick started in December 2020, as HECM volume previously had been on a downward trend in the final months of 2020 according to data compiled by Reverse Market Insight (RMI).
Additionally, the production of new Home Equity Conversion Mortgage (HECM)-backed securities (HMBS) recorded $949 million in HMBS issuance as issuers begin to move LIBOR-indexed loans out of their pipelines. All told, 2020 saw $10.6 billion in total HMBS issuance, eclipsing a recent industry high of $10.5 billion of issuance in 2017 according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.
HECM endorsement volume
While the figure recorded in January is not as high as the over 5,000 loans observed last May, the highest number since that point was bound to turn some heads, including RMI President John Lunde.
“I agree this is a bit of a surprise, but it does underline that Q4  fundings were stronger than the endorsements indicated,” he tells RMD in an email. While possible that some of the additional volume activity is linked to the impending retirement of the LIBOR index for HECM loans, that is likely more plainly seen in the HMBS data.
Eight of the 10 regions tracked by RMI also saw their endorsement volumes rise, with the MId-Atlantic rising a notable 40% from a relative dip observed in December, followed next by the Northwest/Alaska jumping over 30% and the Midwest region gaining nearly 20% on December figures.
“The regional trends are interesting to me in that we don’t know yet how much of each region’s strength is driven by HECM for Purchase (H4P) vs. refi vs. traditional volume,” Lunde explains. “All of those benefit from higher home prices, which can benefit from low inventory, but this first take is really just that in thinking about regions and metros around the country. With more granular data in our HECM Originators and Trends reports, we’ll have a clearer picture. And, of course, our paid clients have access to all of that detail in our Retail Dashboard.”
In terms of whether or not this bodes well for the rest of the year, starting off on a high is always preferable to the opposite, but the industry shouldn’t get ahead of itself, either, Lunde explains.
“Always better to start January on a high and it bodes well for the year ahead, but also wouldn’t want to get too far over our skis in predicting the rest of the year from it,” he explains. “We still believe the industry has a solid underlying growth tendency driven by consumer need and product/market fit, which has only been enhanced by the pandemic conditions we’re seeing.”
Lenders both within and outside of the top 10 saw volume increases, particularly when observing trends over the past several months, he says.
“It’s notable that lenders are seeing multi-month growth surges on this report given the lumpiness of endorsements generally,” he says. “Longbridge is a good example here, where they’re showing their highest ever volume on this report on the back of consecutive months of growth.”
In the end, the reverse mortgage industry needs to remain focused on its core strengths in order to try and maintain its momentum longer into 2021, including maintenance of many core strengths and giving attention to some perennial weaknesses in terms of product awareness, Lunde advises.
“My sense is the industry has a strong tailwind right now with low interest rates, rising home prices and financial market volatility,” he says. “The best way to capitalize is to keep looking ahead for future growth investments in education, relationships, technology and product development even while capturing higher volume in the current moment.”
That’s not to dismiss the herculean task that can be for some, but for everyone who’s stuck with the industry through the past ten years, seeing levels like this should be encouraging, he says.
“A wise man once told me that’s like changing the tire on a car at 100 mph and he wasn’t wrong, but it’s the nature of the beast,” he says. “And after the proverbial decade of leaner times for the industry it’s a welcome change for those that persevered.”
The HMBS issuance total of $949 billion happened as issuers continue to wrap up their existing pipelines of loans indexed to LIBOR, and January 2021 stands as the next-to-last month that the Government National Mortgage Association (GNMA, or “Ginnie Mae”) will allow pooling of new HMBS pools backed by LIBOR-based HECMs, according to a commentary by New View Advisors based on publicly available GNMA data and the firm’s own sources.
While HECM endorsement data is encouraging, it needs to be appropriately understood in context with something like HMBS issuance data according to Michael McCully, partner at New View Advisors.
“Endorsement data does not reflect current capital markets activity,” he tells RMD in an email. “Rather, it should be used as a backward looking metric, preferably over long periods of time.”
With the reverse mortgage industry in the process of shifting back to the Constant Maturity Treasury (CMT) index while it awaits a more permanent LIBOR replacement, January saw the appearance of HMBS backed by loans indexed to CMT, with 19 pools totaling slightly under $300 million. No new first-participation pools backed by CMT have been issued in several years according to New View, but given recent events their appearance here was not exactly a surprise.
“We expected to see a mix of LIBOR and CMT HMBS in January,” McCully told RMD. “Expect to see a mix in February, too.”
Total January issuance was lower when compared to figures recorded in December, but is still on par with levels seen one year ago and has possible attributing factors, McCully explained. The nature of the figures also makes it difficult to predict further into the year.
“While January 2021 production was less than what occurred in Q4 2020, it is nearly identical to [issuance figures recorded in] January 2020,” McCully says. “It could be explained by seasonality, or a reversion to the mean. […] 2021 cannot be gauged based on one month of production.”