While it had been speculated that an FHA hiccup may have contributed to September’s recorded drop in reverse mortgage endorsement data, figures for October indicate that such an impact may have been overblown.
Home Equity Conversion Mortgage (HECM) endorsements ticked slightly upward in October by 8% to 3,504 loans, marking only the second month of monthly volume under 4,000 units since November 2020. This is according to data compiled by Reverse Market Insight (RMI).
Meanwhile, the production of new HECM-backed securities (HMBS) in October fell once more to $824 million, a drop from the $966 million in HMBS issuance seen the prior month. October marked the 20th month after the London Interbank Offered Rate (LIBOR) “era” as the industry marches on with the Secured Overnight Financing Rate (SOFR) index for new loans.
Issuance is still on track, however, to outpace the total figure seen in 2021, according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.
HECM endorsement volume sees slight rise
Six of the top 10 reverse mortgage lenders recorded gains from September, while nine of the 10 tracked geographic regions also saw volume gains in October. Highest performers among the lenders included American Advisors Group (AAG), HighTechLending and Reverse Mortgage Funding (RMF), which all recorded gains of roughly 30%.
In spite of the improvement over September, none of the top 10 lenders managed to overcome that month’s losses. However, RMF and Mutual of Omaha Mortgage managed to come the closest of the major lenders, off only between 5-9% from pre-drop-off volume from August.
Asked to characterize where the industry currently sits in light of this new volume data, RMI President John Lunde told RMD that this is indicative of what is likely a “new normal” for the reverse mortgage industry for the time being.
“Month-to-month is always a little noisy with endorsements,” Lunde told RMD in Atlanta at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting and Expo on Thursday. “I think the bigger thing that I look at from here is just that there was a thought and a little bit of a question at the end of September and beginning of October about whether a technology issue had affected the volume data in September and created that very dramatic 40-plus percent drop month over month.”
The potential for any technology issue on the side of the Federal Housing Administration (FHA) appears to be settled, he says.
“I think October’s data puts that to bed,” he explained. “Even if there was some technology issue, it didn’t have a meaningful impact. Unless it’s still ongoing, but I haven’t heard anybody suggesting that.”
HECM volume as a stronger industry health indicator now
Between HECM volume and HMBS issuance, there’s an active debate over which metric is more indicative of broader industry health. For the moment, Lunde believes that volume is a stronger indicator of where the business is currently at.
“I think September endorsements were actually a precursor to what we’re seeing happen on the HMBS issuance side,” he said. “We’re seeing that much more slowly tail off. Whereas the endorsements, we saw a pretty immediate correction.”
The bottom line, he says, is that this is where things are likely to remain through the end of 2022 and potentially into 2023.
“I think [October’s data] really just underlines that this is where we’re at,” he said. “We’re in the low 3,000 range [for monthly unit volume], and that’s the new normal.”
Interestingly, Finance of America Mortgage (FAM) recorded 47 reverse mortgage endorsements in October. Early that month, parent organization Finance of America Companies (FOA) confirmed that it would be closing down FAM in order to focus primarily on its specialty finance and service business (SF&S), which includes leading reverse mortgage lender Finance of America Reverse (FAR).
While the industry as a whole saw a slight volume gain in October, none of the top 10 lenders managed to break 1,000 units for the month. AAG’s tally for HECM volume in October came in at 812 loans, followed by Mutual of Omaha with 479 and Longbridge Financial with 285.
HMBS issuance remains on track for record year despite losses
The HMBS issuance total of $824 million — $144 million lower than the figure recorded in September — marks a sixth straight month of declines, attributed to higher interest rates continuing to have an impact on the market according to a commentary accompanying data shared by New View Advisors. Issuance in total fell below $1 billion for only the third time in the past 19 months, they said.
Still, a full-year record remains in sight despite the losses.
“With ten months in the books and nearly $12.5 billion issued, HMBS is on pace to set another new volume record in 2022,” the commentary reads. “However, for the foreseeable future higher interest rates will challenge the reverse mortgage market, driving down home values and the Principal Limit Factors (PLFs) that determine how much HECM lenders can lend against those home values.”
The rate environment is unlikely to change — in a downward direction, at least — and that will likely keep industry activity in this sense from rising too much beyond what has been seen over the past one-to-two months, New View Partner Michael McCully told RMD in September.
“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.
Last month, indications were that home price appreciation had softened considerably. In 2021, it was strong appreciation which catapulted the reverse mortgage book of business inside the Mutual Mortgage Insurance (MMI) Fund into positive territory for the first time since 2015.
New data on the state of the HECM book of business is likely to emerge later this month when the U.S. Department of Housing and Urban Development (HUD) publishes its Annual Report to Congress.