Home Equity Conversion Mortgage (HECM) endorsements in February recorded a decrease last month, falling 10.4% to 4,066 loans. However, this level of business is still encouraging to an industry analyst as it is over 4,000 loans yet again, but marks the first reduction in volume since an uptick took place between in December 2020 and January, 2021. HECM volume previously had been on a downward trend in the final months of 2020 prior to December according to data compiled by Reverse Market Insight (RMI).
Additionally, the production of new Home Equity Conversion Mortgage (HECM)-backed securities (HMBS) recorded $872 million in HMBS issuance as issuers continued 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.
Reverse mortgage endorsement volume
Despite the fact that volume slightly fell between January and February, the industry’s level of new HECM volume is still in positive territory based on factors strictly beyond raw volume. This is according to John Lunde, president of RMI.
“I think we’re still in very good shape from an industry volume perspective,” Lunde tells RMD. “I look more at case numbers issued as a leading indicator here and while November/December were down a bit from earlier months, that fits the normal seasonal pattern with the holidays in previous years. I think we’re still on trend with the pandemic having created a new era for the industry in terms of borrower interest, but particularly with refinances driven by rising home prices and low interest rates.”
Competition also appears to be tightening between some of the industry’s biggest lenders, which could lead to a reshuffling of several lenders in the top 10 rankings, Lunde says.
“We’re seeing several rising lenders lately that have been in the industry for years but really growing their volumes lately to challenge for top 5 spots,” Lunde says. “I would say Fairway, Longbridge Financial and Open Mortgage (ranked 6,7 and 8, respectively) are all coming on strong and looking to displace one or more of the established leaders above them. Each has a bit of a different story but from my perspective it speaks to both the long term investments and commitment to the business that are paying off.”
Outside of the top 10 lenders, other lenders are making noticeable moves in terms of their pace of volume when compared to last year, Lunde says.
“Staying with our theme of longtime industry participants really growing of late as we look outside the top 10, I’d point out Sun American more than tripling from a year ago,” Lunde points out. “Good to see recognizable names with good trends and momentum!”
In terms of what the industry should keep in mind about February’s slight reduction in volume, it’s worth remembering how early we are into 2021 as well as the trends now being established by lenders, Lunde says.
“At this time of year, it’s all about starting off well and based on growth from a year ago that theme is firmly established,” he tells RMD. “I wouldn’t worry much about lower volume in a short month and just focus on powering forward as we near the end of Q1 (already!).”
The HMBS issuance total of $872 billion happened as issuers aimed to wrap up their existing pipelines of loans indexed to LIBOR, with February 2021 standing as the final 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.
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, February continued with the reappearance of HMBS backed by loans indexed to CMT, with 27 pools totaling just under $418 million, New View explained. No new first-participation pools backed by CMT had been issued for several years prior to January 2021.
The passage of the LIBOR deadline happened too recently to try and determine any trends stemming from its passage, but HMBS performance in February is encouraging regardless according to Michael McCully, partner at New View Advisors.
“We are pleased to see the industry moving – what appears to be seamlessly – to [the] CMT [index],” McCully tells RMD. “Early indicators for CMT-backed HMBS performance are encouraging.”
While the reverse mortgage market in general appears to be strong right now because of low interest rates and additional availability of private loans, it could become complicated by future economic conditions, New View noted in the commentary accompanying the HMBS data. This is supported by some recent occurrences, McCully explains.
“The recent rise in rates is a caution flag for future production,” he tells RMD. “Also, home price appreciation (HPA) has been on the rise for years; a drop in HPA could have a negative impact on origination volume, and potentially an increase in realized losses for issuers (and the FHA).”
New, original loan pool production increased in February to $693 million, up from January’s $552 million but still lower than records seen at the end of 2020. On this front, there isn’t anything to read into, McCully says.
“The January dip in production could be seasonal and/or operational as the industry retooled for CMT,” he tells RMD.