So far, the reverse mortgage endorsements in 2023 are at roughly one-third of the total seen last year. However, there has been an uptick in Home Equity Conversion Mortgage (HECM) for Purchase (H4P) loans and a sharp reduction in HECM-to-HECM (H2H) refinance transactions this year, according to data from the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA) that was shared at the National Reverse Mortgage Lenders Association (NRMLA) Western Regional Meeting in Irvine this week.
Endorsements and product types
According to the data, HUD’s endorsement figures for 2022 were roughly 64,000 units, with a maximum claim amount (MCA) of $32.1 billion. There have been roughly 20,000 endorsements this year, with an MCA of $9.8 billion as of April 30. That equates to just less than one-third of last year’s total.
Of particular interest is the breakout of reverse mortgage product types, which tells a fairly different story for this year compared to the pandemic era.
Traditional HECM loans account for 81% of total reverse mortgage business through the end of April. Refinances account for 14% of total endorsements, while H4P loans account for 6%.
The refinance and H4P loan dynamics are also shifting.
From 2019 to 2020, the share of refinance loans increased just 5% of the total to 21%. In 2021 and 2022, refinances ballooned to 42% and 45%, respectively.
Industry trends, rate choices
The COVID era refi boom is now a thing of the past, and the market has become oriented toward new borrowers. The sharp drop in the refi share this year, coupled with the sizable increase in traditional HECMs, indicate that the industry is finding new borrowers who have not engaged with reverse mortgages in the past.
H4P also appears to be gaining traction. While the program has been characterized as a harder sell since it requires buy-in from licensed real estate agents, at 6%, the 2023 share of H4P loans through April 30 is double the full-year share of H4P loans in 2022.
Whether the trend will continue through end of the year remains to be seen. However, it does indicate that the product type has gained on much of the ground it lost.
The rate option borrowers select also indicates a shift. From 2018 to 2020, the annual interest rate was the primary choice for borrowers. In FY 2018, the annual rate option accounted for 88.4% of industry activity, but climbed to 93.7% and 98%, respectively, over the next two fiscal years.
Starting in fiscal year 2020, the annual rate option plummeted to 32.3%, and was down to 0.8% in 2021. As of the end of April 2023, the annual rate option accounted for just 0.1% of endorsements.
In fiscal 2021, the monthly option increased to 60.5% and increased again in fiscal 2022 to 94.8%. So far in 2023, the monthly rate option accounts for 98.6% of industry volume.