The reverse mortgage industry is continuing to adjust to a new normal, but industry professionals maintain optimism, even if the adjustment period proves to be a difficult one.
While experts say early indications indicate a recovery in the months ahead, Home Equity Conversion Mortgage (HECM) endorsements fell in February by 12.2% to 2,185 loans. This marks the lowest total monthly figure in four years, excluding a pandemic-related market decline in April 2020, according to Reverse Market Insight (RMI) data.
In addition, the production of new HECM-backed securities (HMBS) fell again last month, according to data from New View Advisors. New HECM-backed securities production dropped to $507 million in February, down from $523 million the month prior.
HECM endorsement volume
While last month’s endorsement totals are lower on average, owing to fewer working days in the month, there were some signs of momentum. The New England region grew its endorsement totals by 12.3% to 91 loans, and the region has had the least severe activity drop since March 2022, according to RMI.
Industry leaders, including Open Mortgage CEO Scott Gordon and executives from the parent companies for Longbridge Financial and Liberty Reverse Mortgage, have expressed optimism about the reverse mortgage business for 2023.
Still, the nature of endorsements needs to be kept in mind, according to RMI President John Lunde.
“I think it’s always important to keep in mind that these are endorsements, which are trailing case numbers issued and applications by several months,” Lunde said. “We’ve seen some early evidence of a turn in the industry, but it’s hard to say how quickly that would happen and Q2 is right around the corner.”
The need for new borrowers persists
One way the reverse mortgage industry could adjust is to steer toward new-to-reverse borrowers, according to analysts and other professionals. Lunde sees that happening, but the results won’t be instantaneous.
“It’s never fast enough, but if there was ever a convincing argument for focusing on borrowers that aren’t qualifying by the skin of their teeth for a refi or cash-out, the current home price appreciation and interest environment is it,” he said.
According to HUD data compiled by New View Advisors, HECM-to-HECM refinance activity dropped to 10.7% of all reverse mortgage endorsements in January, a sharp drop compared to the pandemic period — in which refis accounted for as much as 50% of all HECM volume.
HECM-to-HECM refinances accounted for 45.9% of all HECM loans in 2021, and 50.8% of all loans in Q4 2021. HECM refis made up 35.6% of all endorsements in Q4 2020, and in FY 2020, accounting for roughly 25% of endorsements, according to data released in 2021.
HMBS issuance ‘saw its shadow’
HMBS issuance has taken a hit recently as the market adjusts. Notable disruptions include the bankruptcy of Reverse Mortgage Funding (RMF) and the impending consolidation of American Advisors Group (AAG) and Finance of America Reverse (FAR).
In turn, HMBS issuance in February marked the 10th straight month of declines, according to New View Advisors data.
“In February, the HMBS new issue market saw its shadow on Groundhog Day, received no Valentines, and celebrated Millard Fillmore on President’s Day,” New View commentary states.
With only 58 pools of HMBS issued, and original, first-participation production falling to $322 million for the month, the market was likely impacted by a lack of issuance from the RMF portfolio — which is now held directly by Ginnie Mae. A lack of issuance from Ginnie Mae also brought tail pool issuances for the month down to $185 million, “far lower than the typical range,” New View said.
However, Ginnie Mae recently took action on liquidity pressures affecting the HMBS market. Last month, the GSE announced that it reduced the required minimum size from $1,000,000 to $250,000 for all HMBS pool types.
“This is showing me that Ginnie Mae is going through everything they can think about [as it relates to] how they can put more liquidity into the system without jeopardizing the Ginnie Mae [HMBS] program,” former Ginnie Mae President Ted Tozer said in February.