The headline at the beginning of the month served as a stark reminder of what reverse mortgage industry analysts have been warning about for months: the wave of Home Equity Conversion Mortgage (HECM)-to-HECM (H2H) refinance transactions that buttressed the business during the COVID-19 pandemic and beyond is well and truly over.
Volume in September recorded a drop of 43.5%, signaling that originators will be well-suited in the months ahead to seek out business from new-to-reverse borrowers. Still, with higher rates hitting the broader mortgage industry pretty hard well before that point, the data initially gleaned in August seemed like a strange anomaly: volume for that month actually increased from the month before, and now there is some new information showing what exactly took place from Reverse Market Insight (RMI).
To better understand what the new data for August means, and what it could potentially telegraph for the months ahead, we’re taking a closer look at the volume data for August and keeping a potential caveat for the September drop in mind with RMI President John Lunde.
The August volume bump
As previously indicated, HECM endorsements rose in August by 16.3% to 5,718 loans. This nearly wiped out the volume drop seen in July and rose levels one more time to a threshold above 5,000 monthly units. With the new data breaking down per-channel performance, wholesale significantly outperformed the retail side of the business, with the former rising 25.3% and the latter rising 8.8%.
At the time the data was released, RMI Director of Client Relations Jon McCue had difficulty pinpointing the cause but overall H2H activity in July also recorded notable reductions, indicating that the reverse mortgage business is and has been in the midst of a transition back over to new business since at least the middle of the summer. Because of that shift, however, McCue explained at the time that it may be a while before a “norm” ends up emerging out of the industry’s performance data metrics.
“We know case numbers for H2H have dropped off, but we’ll have to see how the new reverse/equity takeout and purchase numbers play out here over the next few months as people continue to shift their business models and marketing focus,” McCue told RMD in September.
The potential caveat of September’s fall-off
The following month, HECM endorsements fell by 43.5% to 3,235 loans, dropping under 4,000 loans for the first time since November 2020 and to a level not seen since the original onset of the pandemic that April. All top 10 lenders and all recorded geographic regions saw their endorsements fall in September, though more detailed breakout data for that month remains forthcoming.
More recently, RMI President John Lunde says that he is reticent to discuss the September data in too much detail because it’s possible that a technical issue could account for at least some of the drop as indicated in the data for the month.
“The thing to think about the September data is that I’ve heard some indications — and we just won’t know until we have more data next month — that some technical issues on the software side for FHA might have created some of that drop,” Lunde said. “It would be great if that’s the real story there, and [it ends up shifting] some of those endorsements from September into, maybe, October if those technical issues get sorted out.”
Of course, the other thing worth keeping in mind is that the month-to-month tracking of reverse mortgage endorsement data is “noisy,” Lunde says, but the drop recorded in September is significant enough that absent potential technical issues, it would certainly be more concerning, he explains.
New details from the August data
In addition to breaking out the performance between the wholesale and retail channels of business, the updated August data also includes a few additional points worth highlighting which reinforce the potential for positive trends.
Equity takeout cases — meaning endorsements from customers new to the reverse mortgage product category that are neither purchases nor refinances — rose to 4,015, the second-highest total for the year after the 2022 record was set in March. This could indicate that concerns related to home prices and inflation are outweighing the factor of higher interest rates in driving more people to consider reverse mortgages.
H2H refinance cases saw a slight rise in August to 1,054, but the rise is negligible in comparison to the equity takeout cases recorded for the month in comparison with July data, Lunde said. RMI notes that this figure is well off its peak from a year ago and remains likely to decline further.
HECM for Purchase (H4P) transactions, meanwhile, hit 233 units for August, matching that segment’s highest 2022 total. This is a segment that could make a major difference for the industry in the future, Lunde says.
“If purchases tripled immediately — like, today — to me that would be most meaningful in terms of setting us up for even more growth next year and the years beyond,” he says. “You just can’t go from 200 units a month to 1,000 a month, you need a couple of steps in between. If and/or when we start getting to around 1,000 [H4P units] a month or more, that’s when we’re starting to really make a dent and create a critical mass of purchase volume.”
Read the HECM Originators report with this new data at RMI.