While reaching an all-year high for 2021 in December, January 2022 pushed total reverse mortgage industry volume even higher. Now, while recording a slight dip, business levels still remain elevated.
Home Equity Conversion Mortgage (HECM) endorsements fell in February 2022 by 10.7% to 5,153 loans, a reduction to levels still well above a threshold of 5,000 units per month. This is according to data compiled by Reverse Market Insight (RMI). The last time industry volume recorded a slight reduction was in November, which did little to tamp down endorsement momentum through the end of December in terms of raw volume.
The production of new Home Equity Conversion Mortgage (HECM)-backed securities (HMBS) nearly reached another record, in January coming in at nearly $1.4 billion in HMBS issuance in the twelfth month of the period after the London Interbank Offered Rate (LIBOR) “era.” As previously stated 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.
A reduction, but HECM volume remains high
It wasn’t too long ago that reaching a threshold of 4,000 monthly reverse mortgage units would’ve been considered a lofty goal to reach for industry health. Now, 5,000 monthly units has been an observable trend since late 2021, though the high reached recently in January was not met in February. Part of this could just come down to the fact that February has fewer days according to John Lunde, president of RMI.
“I don’t really see an obvious reason for the drop in February other than it being a short month,” he told RMD. “There were 19 business days in February compared to 20 in January (and 23 in March).”
When asked about whether the generally high volume levels observed in the opening months of 2022 could be the establishment of a persistent trend, Lunde says it’s possible based on previous years of early-month endorsement data, with a caveat.
“January/February has been a pretty good predictor of annual volume with exception of major product change years,” he explains. “After 2 months, we have more endorsements than any year since 2011 if we ignore 2018 which was inflated for January and February by loans endorsing under rules prior to October 2017.”
The historical data also indicates that 2022 could see potentially higher volume levels than was observed last year, barring unforeseen circumstances.
“Looking historically, we are on track for ~65,000 loans this year, which isn’t a stretch since we’re on that pace already,” he says. “But there’s certainly potential for upside there. If we hit 73,000 (which is a stretch) then the industry would have recovered volume-wise from all product changes since the first PLF reduction in 2009.”
In terms of the outsized role played by HECM-to-HECM refinances in 2021, their presence in the new year has yet to diminish and may still play a notable role in business over the next several months, he says.
“Refis are likely to continue to play a big role and we have likely not seen the full impact of higher rates on that volume yet,” Lunde says. “This is given ongoing volatility in rates and the lagging nature of endorsements.”
In RMI’s accompanying commentary to the February data, Lunde chose to emphasize much of the growth observed in the industry since last March.
“I used March as the comparison just to show a longer-range view and as the oldest month of volume shown on the HECM Lenders report published this month, which makes it easily accessible to the public reader,” he says. “We, of course, have data going all the way back for subscribers to utilize.”
The monthly volume reduction struck across all regions and eight of the top 10 lenders, with HighTechLending and Advisors Mortgage Group being the only two in the top performers to build on volume observed in January at both companies.
HMBS issuance remains stable
February’s HMBS issuance was stable when compared with January data, according to New View.
“HMBS issuers continued their torrid pace to start the New Year,” New View said in its commentary accompanying the data. “February saw again nearly $1.4 billion in new HMBS issuance, almost setting a record for new original loan pools for the fifth month in [a] row. Refinancing activity continues to be strong.”
While issuance was stronger in February when compared with the endorsement data, there is not a significant amount of bearing that one figure has over the other according to Michael McCully, partner at New View.
“Endorsement lag can be attributed to any number of reasons, including but not limited to delivery timing of loan files to HUD, staffing issues, and other operational bottlenecks,” he says. “As such, month-to-month variance in endorsement volume has little meaning.”
Unlike reverse mortgage endorsement data, establishing a firm trend for HMBS issuance requires more time in the year to have elapsed, he explains.
“Until a majority of 2022 is in the books, it is difficult to project volume for the year, especially because so much of it is HECM-to-HECM refinance,” McCully explains. “Low rates and simultaneous high home values have contributed to the surge in volume since 2020. Rising rates and/or falling home values would likely slow originations in general, and refinance volume in particular.”
Still, reverse mortgage professionals should not dismiss HMBS issuance data, as it is a very strong indicator of the health of the overall business, McCully reiterates.
“HMBS volume is a superior indicator of overall industry health [when compared with] unit count,” he says. “Endorsement data is easily manipulated, and subject to activity apart from pure origination, intentionally or otherwise. HMBS dollar volume is not, and has the added benefit of accounting for loan size and future tail issuance.”