Home Equity Conversion Mortgage (HECM) endorsements rose in December 2021 by 5.4% to 5,218 loans, a final push that has made December the highest volume month of the year after enduring a very slight dip in the previous month. This is according to data compiled by Reverse Market Insight (RMI).
In July, it appeared that a streak of monthly volume above a threshold of at least 4,000 units that the industry had seen since late 2020 had come to an end. However, September’s volume spike managed to completely overcome such a shortfall, and October’s succeeding volume levels put the industry back into a solid position. A slight reduction seen in November did little to tamp down endorsement momentum observed since the beginning of the fall, culminating in the year’s best month in December in terms of raw volume.
Once more, the production of new Home Equity Conversion Mortgage (HECM)-backed securities (HMBS) reached a record, in December coming in at $1.5 billion in HMBS issuance in the tenth month of the period after the London Interbank Offered Rate (LIBOR) “era.” A total of $13.2 billion in HMBS issued in 2021 easily overtook the previous industry record of $10.8 billion set in 2010, according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.
All told, 2020 saw $10.6 billion in total HMBS issuance, eclipsing a previous industry high of $10.5 billion in 2017.
December HECM volume: a high for the year
Now that 2021 is fully in the rearview mirror, the industry’s general performance for the year helps to emphasize that the business aimed to take as much advantage of the stronger mortgage fundamentals – including higher home price appreciation and lower interest rates – in spite of a challenging period. This is according to John Lunde, president of RMI.
“It really underlined the silver lining to the pandemic cloud,” Lunde told RMD. “2020 was about transitioning to remote work and safely distanced customer transactions through the quick actions of government and everyone working in the business, while 2021 showed the benefits of rocketing home prices and low interest rates on a product where consumers benefit from both.”
Of course one of the big headlines for the year revolves around the share of HECM-to-HECM refinances making up the total share of industry volume – at or over 50% – but the refi dynamics at-large are at least reasonably well-aligned with similar dynamics on the forward mortgage side, he said.
“[These dynamics] have meant refinances comparable to forward industry dynamics, but also underlines the place of home equity in financial planning conversations from now on,” Lunde said.
Now that the higher reverse mortgage lending limit of $970,800 has gone into effect as of January 1, it may have been easy to assume that loan volume might see a dip before coming back stronger in the new year to take potential advantage of higher levels of loan proceeds for borrowers. However, December may have been too soon to see that trend, according to Lunde.
“The impending lending limit increase was a big reason we could see year-end volume tail off somewhat, although endorsements might show that more in January than December given it was announced on November 30,” he said. “So, while there may be more to that story, for now the strong December endorsements just underline industry performance in 2021 and particularly Q4.”
One other trend in the December data is that while overall reverse mortgage industry volume was higher, only four of the top 10 lenders in the country managed to post volume gains when compared to November’s performance. Indeed, six of the top 10 lenders actually saw slight decreases in loan production.
“Signs of broader distribution are welcome for the industry, of which this could be a small signal,” Lunde says of the discrepancy. “If we continue to see the industry grow faster than the top 10 lenders that would be a healthy effect of a growing market.”
HMBS issuance, rankings upended by recent sale
A long-predicted fall of the HMBS issuance record from 2010 took place in November, but there is a chance that the industry could be poised to break the record again in 2022 if certain existing industry dynamics continue. This is according to Michael McCully, partner at New View Advisors.
Overall, the state of the reverse mortgage industry appears to be strong and leads to an optimistic perspective at New View, however there remains a pre-existing caveat to that optimism in the form of HECM-to-HECM refinances, McCully said.
“We’re pleased to see record volume; but we remain concerned about the fact that refinancings have remained as robust as they have,” McCully told RMD.
When it comes to 2021’s performance and its role in shaping perspectives in the short-to-mid-term for 2022, current trends and fundamentals give reason to a perspective of strong HMBS performance in the beginning of the year, he said. When asked if 2022 could also serve as another record-breaking year in spite of the prior gap between HMBS issuance records being between 2010 and 2021, McCully indicated that the possibility is present.
“With the new higher maximum claim amount limits in effect January 1, home values stable or rising, and rates relatively low, we expect continued strong HMBS issuance to start 2022,” McCully said. “If rates remain low and home prices stable, expect another strong year for HMBS issuance.”
New View also released its revised HMBS Issuer League Tables, which saw Reverse Mortgage Funding (RMF) become the highest-ranked HMBS issuer in 2021 with $4.09 billion and nearly 31% of total market share. Its ascension to the top spot is due in no small part to its recent acquisition of mortgage servicing rights (MSRs) from American Advisors Group (AAG), a transaction comprised of over 75,000 loans and $12.1 billion in unpaid principal balances (UPB). That single transaction comprises roughly 10% of total industry-wide UPB.
“Ginnie Mae gives full issuance credit to the surviving/purchasing HMBS Issuer,” New View noted in its commentary accompanying the data.