The reverse mortgage industry is settling into “a new normal,” as business activity at the start of 2023 is expected to be lower compared to the two years prior.
According to data compiled by Reverse Market Insight (RMI), Home Equity Conversion Mortgage (HECM) endorsements fell in November by 6.6% to 3,272 loans, marking just the third time since November 2020 in which monthly volume has been under 4,000 units. According to the RMI report, the November figure just narrowly avoided a multi-year low.
Per the data, the production of new HECM-backed securities (HMBS) in November fell again, dropping to $763 million from $824 million the prior month. This marked the 21st month after the London Interbank Offered Rate (LIBOR) “era” as the industry continues with the Secured Overnight Financing Rate (SOFR) index for new loans.
November issuance managed to push beyond the total figure seen in 2021, marking a new record. It is unlikely this trend will reoccur in 2023, however, according to Ginnie Mae data and private sources compiled by New View Advisors.
A new normal in volume
When asked if this level is likely to indicate a new normal for the reverse mortgage industry, RMI President John Lunde responded affirmatively.
“That’s exactly what this was,” Lunde said.
Among the product types that generated the most business, equity takeout customers — meaning those new to the reverse mortgage business — took the lead, while HECM-to-HECM (H2H) refinances drifted lower. HECM for Purchase (H4P) loans remained in a distant third place.
According to New View Advisors, H2H activity fell to just 20% of the month’s total endorsements, a sizable drop from the at- or over-50% level that refis occupied for much of 2020 and 2021.
From a broader historical context, 2022 has become difficult to quantify, as this year was the first time that the reverse mortgage sector had a refi boom similar to the one for the traditional forward mortgage side, Lunde said.
“On that basis, it’s hard to compare it to historical standards, but I would say it has been turbulent and looks to end that way as well with the recent bankruptcy,” Lunde said in reference to the recent news about Reverse Mortgage Funding (RMF). “Although if anyone had told us all before 2022 that rates would do what they have and what volume has been, there would be a healthy chunk of the industry that would say the experience has been not as bad perhaps as those macro factors might suggest.”
In turn, it has been a generally tough time for the industry, but serves more as an indictment of the macroeconomic environment as opposed to indicting the reverse mortgage product or the industry, he said.
A new record in HMBS issuance for 2022 has been expected for much of the year, and it did come to fruition in November, according to New View Advisors. In 2021, the record was set at $13.2 billion, but the end of November, the total reach for 2022 was at $13.23 billion. However, the industry will be unlikely to come near that total in 2023, according to a commentary accompanying New View’s data.
The fall in HMBS issuance for November to $763 million marked the seventh straight month of losses, New View said. When asked about what the takeaway should be for the industry, New View Partner Michael McCully said that it’s all about rates and the amount of money borrowers will be able to get from their loans.
“Volume is highly dependent on interest rates, as it is in the forward industry,” he said. “2023 issuance volume will fall short of 2022 because higher interest rates translate into lower proceeds for borrowers.”
Much of what will determine next year’s level of business centers on finding borrowers who are new to the industry, McCully said.
“Any 2023 volume gains will be incumbent upon finding new borrowers,” he said.