As the reverse mortgage industry works to find new borrowers following a decline in HECM-to-HECM refinance opportunities, home equity conversion mortgage (HECM)-backed securities (HMBS) payoffs fell again in January, according to Ginnie Mae data and other sources from New View Advisors.
“January payoffs totaled about $756 million, the lowest payoff amount in nearly 6 years and the lowest payoff rate in 7 years,” New View said in its commentary. “Outstanding HMBS rose to a record $59.9 billion due to the drop in payoffs.”
Numerous issues have impacted the market recently. As higher interest rates impacted the market, initial loan-to-value ratios (“principal limit factors” in reverse parlance) fell sharply starting in the fall of 2022. Home prices declined in October, and there were signs of trouble for Reverse Mortgage Funding (RMF) before originations ceased and the company eventually filed for bankruptcy.
“Right now, the question is how low can you go with the volume and prepayment speeds,” said Joe Kelly, partner at New View Advisors in an interview with RMD. “Going into HMBS, there are fewer than 3,000 loans a month, which is pretty low. The principal limit and the maximum claim amount that you can lend on with the HECM program is up, but it remains to be seen if that will impact HECM volume.”
The impending acquisition of leading reverse mortgage lender American Advisors Group (AAG) by Finance of America Companies (FOA) also presents a challenge. This move will combine AAG and Finance of America Reverse (FAR) under one corporate umbrella and take another HMBS issuer out of the Ginnie Mae program, New View said.
Another factor impacting the HMBS market is Ginnie Mae’s recent assumption of the servicing of RMF’s portfolio, according to New View.
“Ginnie Mae – Reverse Mortgage Funding 42″ is shown as the issuer of record for 4,053 former RMF HMBS pools, New View says of Ginnie Mae’s recent data release. About $290 million of Issuer 42’s portfolio paid off in January. “”Issuer 42′ HMBS accounts for just under $21 billion, or about 35% of all outstanding HMBS,” according to the commentary.
In January, the annual HMBS payoff rate also fell to its lowest level since February 2016.
“Exclusive of mandatory purchases, the rate of HMBS payoffs is falling rapidly,” New View said. “HMBS payoffs resulting from underlying HECM loan payoffs, including payoffs due to mortality and refinancing, fell to fewer than 6%, a seven-year low and fewer than one-third the rate of a year ago.”
The rate environment will also play a role in the months ahead, Kelly said.
“Interest rates are down significantly since the fourth quarter, but the 10-year Treasury rate is up versus a year ago by about 160 basis points,” Kelly told RMD. “Refi volume doesn’t just have to do with interest rates alone, but the path that interest rates take. So it remains to be seen if that will materially impact HECM and HMBS issuance volume.”
New HMBS production declined to $523 million last month from $742 million the month prior, according to prior data released by New View. Endorsement volume also experienced a 10.7% decline in January, which was projected according to Reverse Market Insight (RMI) President John Lunde.
Read the newest HMBS issuance commentary at New View Advisors.