In what is likely to be some welcome news after a tough August that saw reduced volume, lender layoffs and tough earnings calls, reverse mortgage volume appears to have picked up in the final full month of the summer.
Home Equity Conversion Mortgage (HECM) endorsements rose in August 2022 by 16.2% to 5,727 loans, nearly wiping out the volume drop seen in July and raising levels above 5,000 monthly units once again. This is according to data compiled by Reverse Market Insight (RMI). While both March and April featured historic production of over 6,000 loans — a threshold that would’ve seemed highly unlikely just a couple of years ago — the dissipation of the HECM-to-HECM refinance boom is starting to have an impact.
Meanwhile, the production of new HECM-backed securities (HMBS) in August reached $988 million, a drop from the $1.2 billion in HMBS issuance seen the prior month. August marked the 18th month after the London Interbank Offered Rate (LIBOR) “era.” As previously stated, a total of $13.2 billion in HMBS issued in 2021 easily overtook the previous industry record of $10.8 billion set in 2010, according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.
HECM volume rises again
Particularly due to the generally reduced level of H2H volume, the rise in August levels is a little hard to nail down when it comes to a potential cause according to Jon McCue, director of client relations at RMI.
“It is a little hard to say [what has caused the August spike],” McCue tells RMD. “But we were hearing around the end of May and into June that many originators were favoring the proprietary loans over the HECM, so this and the industry adjusting to the new rate environment played a role in the July drop we saw, I believe.”
July also saw a demonstrable reduction in case numbers attributable to H2H activity, which McCue says is an expected ongoing occurrence. However, because of that it may take a little longer to determine whether or not the July or August business levels were outliers in terms of broader industry trends.
Analysts including McCue and RMI President John Lunde as well as New View Advisors Partner Michael McCully, along with other industry professionals have been explaining to RMD for several months that professionals must find a way to focus on finding new customers over refi business. When asked if that guidance could be starting to sink in, McCue indicated that it appears possible based on what he has been seeing and hearing.
“In conversations I have been involved in with originators, there is a renewed priority for new-to-reverse [customers],” McCue explains. “It’s just that it takes time to shift your operations in a new direction if you didn’t have it already lined up. Not only this, but there also seems like there is new interest from other forward companies who are looking to make up for the lost volumes on that side. The more we expand distribution of this solution, the better it will be for the entire industry.”
As for any potential predictions about how the volume will shake out, McCue is reticent to make any just because of the state of the economy as well as other industry activity in areas like proprietary loans and remaining refi volume.
“We know case numbers for H2H have dropped off, but we’ll have to see how the new reverse/equity takeout and purchase numbers play out here over the next few months as people continue to shift their business models and marketing focus,” he says.
In summation, while difficult to predict any new trends, professionals should keep at their current activity especially as it concerns finding new borrowers, McCue adds.
“I’m not sure if these numbers are a true indication of a ‘direction’ yet, but they should continue to focus on new borrowers and any channel that can get them there,” McCue says. “With rates going up on the forward side, and home prices still being high I think now is a great time to speak to real estate agents about HECM for Purchase (H4P).”
Financial planners may also find themselves more receptive to something like a reverse mortgage for certain clients given current market conditions, he says.
“The market is in flux, and prices for goods and services are still way up from a year or two ago,” McCue says. “A reverse mortgage is a great option to add to one’s financial plans.”
HMBS issuance: down but stable
When asked to characterize the drop in HMBS issuance for August, Michael McCully explains that much of what has been seen in terms of August data is to be expected considering the rise in interest rates.
“The steady slow decline in volume is to be expected as higher interest rates lower available proceeds to borrowers,” he told RMD. “Overall volume remains strong by historical standards.”
However, by that same token the rate environment is unlikely to change — in a downward direction, at least — which will likely keep industry activity in this sense from rising too much beyond what has been seen over the past 1-2 months, McCully said.
“Unless interest rates drop materially, it is unlikely there will be any meaningful pickup in month-to-month issuance volume for the remainder of 2022,” he said.
Still, while a reduction in activity is not something that anyone wants to see, the upside of such news is that more stability appears to have been introduced into the market, McCully sais.
“The HMBS market has stabilized, albeit at lower prices,” he explained. “There is a wait-and-see attitude by investors on the impact interest rates, future home value, and another possible increase in maximum claim amount (MCA) for 2023 will have on refinancing and other prepayment pressure.”
The MCA for the HECM reverse mortgage program has risen precipitously over the past several years, most recently to $970,800 for the calendar year 2022.