As 2022 comes to a close, reverse mortgage channel data from October has reinforced widespread industry realities. The data shows that as rates have ballooned, refinance volume has dropped precipitously. In addition, reverse mortgages for purchase still struggle to gain a foothold on wider industry activity and new borrowers remain the best path forward for the business.
Home Equity Conversion Mortgage (HECM) volume for October jumped 8.3% compared to one month prior, but did not erase the 43.5% volume drop seen the month before, according to data compiled by Reverse Market Insight (RMI). Retail origination dominated in October, with the retail channel increasing by 14.3% for the month, while wholesale increased by only 1.3% for an average industry-wide growth rate of 8.3%.
The new data indicates that the boom of HECM-to-HECM (H2H) refinances, which helped propel industry volume to record levels in 2020 and 2021, is over. In October, H2H endorsements fell to their lowest level since July 2019. While a volume bump occurred, it did not stave off the losses that occurred the in November.
Big changes to the industry
October may be a final snapshot of what the reverse mortgage industry status quo has been over the last several years. In November, the industry experienced two seismic shifts: the ceasing of originations and subsequent bankruptcy declaration by Reverse Mortgage Funding, LLC (RMF), and the announcement of American Advisors Group’s (AAG) acquisition by Finance of America Companies (FOA).
As such, October is the last month in which there are no proverbial “asterisks” next to AAG or RMF. When looking at the performance by the top 10 lenders, RMF led the way, rising by 40.7% to 294 loans in October and maintaining its place as the fifth-largest industry lender over the past 12 months.
“Although their bankruptcy filing at the end of the last month means we can expect this to drop quickly to zero over the next few months,” RMI noted in the data commentary.
In addition, AAG rose by 34.8% to 840 loans and Ennkar jumped 29.2% to 31 loans in October, solidifying its spot as the 10th-largest lender in the country — despite logging no wholesale endorsements.
New borrowers in, refis out
New case numbers issued in October by 10.7% to 4,168 loans, but also served as an indicator of industry trends prior to the new year. In particular, the trends associated with finding new reverse mortgage borrowers and recent reductions in H2H volume further reinforced what the industry has observed for most of the year, RMI said.
As the industry seeks to find new borrowers, it may be worth looking into the ways that lead sources are managed, according to Jon McCue, director of client relations at RMI.
“[Industry pros should ask] if they’re going after the same clientele as they always have [but] who are not qualifying anymore because of possible reductions in home price appreciation and rising rates,” McCue said. “Are you not stepping outside your comfort zone to find new clients? Companies that start digging in to examine their marketplace(s), and explore new opportunities will be the ones who get ahead in a market like this.”
Refis also continued on a downward trend in October, with H2H case numbers dropping to 548, the lowest recorded figure since July of 2019.
McCue said the efforts of industry professionals to avoid H2H refi business should be greatly emphasized based on the new channel data.
“I know that for some, [refi business] will be enticing to pursue with the rise of the HECM lending limit at the start of the year,” he said. “But with rates also where they are, this pool of clientele will be small at best. However, because of where rates are, we still see major opportunities with the financial community. [We need to] educate them on the benefit of a HECM, and in particular the line of credit, and we need to talk about how this product, when viewed as a managed asset class, can greatly impact one’s retirement strategy.”
Prepare for 2023
For “equity takeout” business — meaning new reverse mortgage transactions that are neither refinances nor purchases — the October case numbers settled at 3,426. That figure aligns with eight of the 10 posted months of individual channel data posted 2022, indicating stability in the industry’s pursuit of new borrowers this year.
New borrowers cases have taken on larger swings in the 2022 data than the industry has seen with purchase volume, McCue said. Still, professionals who have not been seeking out purchase volume may want to consider it because of the lengths of time in which homes are now sitting on the market.
“Purchase should be a focus as homes start to sit longer, interest rates rise, and sellers become more open to financing such as through a HECM for Purchase (H4P),” he said. “People still need to move for different reasons, and an H4P will be a valuable tool to those eligible for one who are looking to find a suitable home for their current needs.”
Still, 2023 is likely to be a tumultuous time for the industry — and its professionals should act and prepare accordingly, McCue said.
“Stay vigilant, get creative, and step outside your comfort zone,” he said. “These are the attributes of all successful people when faced with adversity, and we are in adverse times.”