Home Equity Conversion Mortgage (HECM) endorsements fell in June by 4.4% to 4,160 loans. Though this month’s raw volume is lower, it accounts for yet another month of over 4,000 loans, raising the streak of monthly volume above that threshold to seven months. This is according to data compiled by Reverse Market Insight (RMI).
Additionally, the production of new Home Equity Conversion Mortgage (HECM)-backed securities (HMBS) recorded just over $1 billion in HMBS issuance in the fourth month of the period after the London Interbank Offered Rate (LIBOR) “era.” 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.
Both metrics continue to show steady streams of general industry health even with a slight reduction for the month in endorsement volume, however the industry’s general bolstering by refinance volume remains a concern for the growth of the reverse mortgage business sector.
Endorsement volume: low-volume regions rise, major lenders largely fall
Of all of the national regions tracked by RMI in the calculation of its endorsement data, only three regions managed to record gains in June and they were all largely localized to generally lower-volume areas of the country. The Great Plains region rose 22.7% to 54 loans, followed by New England recording a 15.5% rise to 97 loans. The growth regions were rounded out by the Rocky Mountain region, recording a gain of 9.3% to 495 loans.
Part of the reason that the growth is restricted to these regions in particular could be due to the general HECM-to-HECM (H2H) refinance activity being observed, according to RMI President John Lunde.
“Given the preponderance of H2H refi activity we’ve been seeing, it looks to me as though the industry could be testing the limits of loans available to be refinanced in some of the historically higher volume areas,” he told RMD. “So, [the industry is] now looking a bit more to other parts of the country.”
Only three of the top 10 reverse mortgage lenders were able to post gains on endorsement volume this month, the same number of major lenders that managed to post gains in May. Only one lender that gained last month – HighTechLending – made a return to posting gains this month with a rise of 10.5% to 95 loans.
Leading the major lenders posting gains was Mutual of Omaha Mortgage, rising an impressive 43.1% to 332 loans, its highest volume level since the October 2017 principal limit factor (PLF) changes were handed down by the Federal Housing Administration (FHA). Rounding out the gainers this month was Longbridge Financial, jumping 9.4% to 163 loans.
While volume is still high considering that this is yet another month tallying over 4,000 loans, there may nonetheless be the very start of a cause for potential concern in terms of the way the data is trending, Lunde says.
“I look at recent months as being high enough to not warrant concern, but more the beginning of concern that volume could start trending downward more significantly,” Lunde tells RMD. “We’ve seen some ebbing in earlier indicators like case numbers issued and applications, so we’ll just have to see if that continues.”
The level of volume seen at the major lenders – and a second consecutive month where the majority of them fail to post volume gains – could be an additional indication, Lunde says.
“The top 10 lenders and major volume regions are bellwethers,” he explains. “The lack of strength there is why the industry as a whole isn’t posting growth at the moment.”
Another indication is this recent reappearance of a volume streak over 4,000 units, which has not been seen since a previously-disruptive change was made to the industry, he says.
“Our last such streak [of over 4,000 loans per month] ended in March 2018 as the effect of 2017 PLF changes took hold,” Lunde says. “So, we’re really testing the levels we saw before the last major product change/tightening from FHA over 3 years ago.”
HMBS issuance: refi ‘burnout’ could be on the way
Production of original new loan pools is on a demonstrably positive trend in 2021 when compared to data from prior years, according to Michael McCully, partner at New View Advisors.
“For new issue pools, each month in 2021 is outpacing the same month in prior years,” McCully tells RMD. “June production of new issue pools was approximately $600 million in 2017, 2018, 2019, and 2020. It was $823 million in 2021. For overall issuance, Q2 2021 was a quarterly record with $3.16 billion of HMBS issued.”
There is an indication in the data that the current “boom” being seen on the refinance side may start to recede, McCully says, due to observed rate activity. That also comes with something that the industry should keep in mind to keep business moving in a positive direction if the refi volume drops off.
“Interest rates for new production HECMs are at or near the minimum expected rate, so refinance burnout should start to occur, all else equal,” McCully tells RMD. “The industry will need to stay alert on appraisal quality as the impact of lower rates producing genuine net tangible benefit to borrowers recedes.”
New, original pool production is still in a generally good place, McCully says.
“Overall, new issue volume remains strong. Modest month-to-month swings in volume are to be expected,” he says.
However, he reiterated that appraisal quality will need to remain a priority for industry participants. Recently, FHA allowed recently-allowed exterior-only appraisal provisions to expire in light of the wide availability of vaccinations for the COVID-19 coronavirus, as well as internal government data indicating that use of the exterior-only option for reverse mortgages was being used by appraisers less and less.
Appraisers reached by RMD largely lauded the move as one that can increase appraisal quality, since an exterior-only inspection naturally leaves out important attributes of a property in the examination process.