Home Equity Conversion Mortgage (HECM) endorsements in March ticked upward in March, rising 3.8% to 4,220 loans. It is yet another month recording over 4,000 loans, marking another increase after February saw the first reduction in volume since December and January. 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 $858 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.
This is on the heels of generally positive news for the industry related to the HECM program’s position in the Mutual Mortgage Insurance (MMI) Fund, showing that the program is exhibiting a trend of overall budget positivity as volume has fallen relative to Q4 2020.
Reverse mortgage endorsement volume
The increase in volume is an encouraging sign for the reverse mortgage industry overall, and while some analysts may try to look at such volume with cautious optimism, RMI President John Lunde dismisses the idea that the volume currently being seen is a sign of a “bubble.”
“On the contrary, I think the industry continuing above 4,000 is a good sign that can continue,” he tells RMD in an interview. “Although the biggest threat has now changed to the rising interest rate environment pressuring PLFs and lender margins.”
Reverse Mortgage Funding (RMF) and Finance of America Reverse (FAR) are slugging it out this month for the second place position for HECM endorsements, with RMF taking the edge in the rankings over the past 12 months. FAR had more overall endorsements for the month, but in the 12-month period ending in March, RMF remains ahead of FAR by a grand total of four endorsements.
“I think it’s a good competition that’s healthy for the industry, particularly with AAG so far in front at number one, to have lenders pushing up the rankings,” Lunde says about the direct competition between FAR and RMF for the number 2 spot. “Both lenders have proprietary products and so HECM isn’t the whole story for them, but I’d still take it positively.”
In terms of regional growth, there were a couple of surprises. The New England region saw an increase of 31.4% from February to March, while the Mid-Atlantic grew 20.5%. The Pacific/Hawaii region – which is the most active reverse mortgage region of the country – also recorded an increase of just under 12%. However, regional changes in the data like those seen in March may not be a whole lot more than statistical noise, Lunde explains.
“The regional changes month-to-month are usually just noise, particularly for smaller regions like these,” he says. “Whereas the signal is in multi-month trends like Pacific/Hawaii trending up lately and topping its high from last May’s COVID catch-up spike.”
However, in terms of the jump seen in the Pacific region, as a whole it managed to best the very high total seen in May 2020, the first major volume spike for the industry after the beginning of the COVID-19 coronavirus pandemic.
“I think for industry overall there has to be more of a sustained growth push to get back to and surpass last May when it was an artificial spike by COVID catch-up,” Lunde says of that total. “I do believe that’s the focus and intent for many of the leading lenders and participants throughout the industry, but better to take the path that puts ongoing relationships with other businesses and educating potential customers and stakeholders rather than quick hits like spammy mailers from the past that don’t build a lasting volume approach to the industry.”
The HMBS issuance total of $858 billion in March took place as the first month after existing pipelines of loans indexed to LIBOR were phased out, with February 2021 standing as the final month that the Government National Mortgage Association (GNMA, or “Ginnie Mae”) allowed pooling of new HMBS pools backed by LIBOR-based HECMs. This is 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 now having shifted back to the Constant Maturity Treasury (CMT) index as the only applicable metric for adjustable-rate HECM loans, March continued with the reappearance of HMBS backed by loans indexed to CMT. 91 pools were issued in March, including 35 first-participation CMT pools. No new first-participation pools backed by CMT had been issued for several years prior to January 2021.
“March production of original new loan pools was $671 million, compared to February’s $693 million, January’s $552 million, December’s record $878 million, and November’s $765 million. Approximately $455 million in original new loan pools were issued in March 2020,” New View notes in its commentary.
New View also commented on the recent news relating to the HECM portfolio’s affect on the MMI Fund detailed in the U.S. Department of Housing and Urban Development (HUD)’s Q1 Federal Housing Administration (FHA) MMI Fund Programs report to Congress.
“Earlier this week, the HECM industry received good news that FHA’s MMI Fund now shows a surplus of 2.39% for the HECM portion of the Fund,” the commentary reads “This report comes only four months after FHA claimed the HECM program was a drag on its mortgage insurance program and was being ‘subsidized’ by their forward mortgage program.”
New View previously described why it determined those previous assertions by HUD to be inaccurate.
“We predicted FHA would soon show a significant HECM surplus, and that has already come to pass,” New View says in its latest commentary. “FHA should now be under less pressure to take measures to reduce HECM risk, program changes that could have taken the form of higher Mortgage Insurance Premiums (MIP) or lower lending limits.”
HUD Secretary Marcia Fudge detailed shortly after the report was published that HUD has no “near-term” plans to change MIP pricing, though the Department will continue to monitor the strategy going forward.
When asked for additional insight on the HMBS data recorded for March, Michael McCully of New View Advisors declined to comment, instead referring RMD back to the company’s commentary.