Reverse Mortgage

Reverse Mortgage Endorsements Fall, Securities Issuance Regular in June


Home Equity Conversion Mortgage (HECM) approvals fell 4.4% to 4,160 loans in June. Although the raw volume is lower this month, it makes up another month with over 4,000 credits, bringing the streak of monthly volume above that threshold to seven months. This is based on data compiled by Reverse Market Insight (RMI).

In addition, new Home Equity Conversion Mortgage (HECM) backed securities (HMBS) production recorded just over $ 1 billion in HMBS issues in the fourth month of the post-London Interbank Offered Rate (LIBOR) era . In total, HMBS issues totaled $ 10.6 billion in 2020, which is a recent industry high of $ 10.5 billion, according to Ginnie Mae publicly available data and private sources compiled by New View Advisors dwarfed in 2017.

Both metrics continue to show steady general industry health, even with a slight decrease in endorsement volume for the month, but the general strengthening of the industry from refinancing volume remains a problem for the growth of the reverse mortgage business sector.

Endorsement volumes: low volume regions rise, large lenders largely fall

Of all the national regions that RMI recorded when calculating its endorsement data, only three regions saw increases in June, and they were all largely located in lower volume areas of the country. The Great Plains rose 22.7% to 54 loans, followed by New England, which rose 15.5% to 97 loans. The growth regions were rounded off by the Rocky Mountain Region with an increase of 9.3% to 495 loans.

According to RMI President John Lunde, one reason that growth is particularly limited to these regions could be the observed general HECM-to-HECM (H2H) refinancing.

“Given the prevalence of H2H refi activity we’ve seen, it looks to me like the industry may test the limits of credit available for refinancing in some of the historically higher volume areas,” he told RMD. “So, [the industry is] Now I’m looking a little more at other parts of the country. “

Only three of the top 10 reverse mortgage lenders posted gains on endorsement volume this month, as did many large lenders who posted gains in May. Only one lender that grew last month – HighTechLending – was back in profit this month, increasing 10.5% to 95 loans.

At the forefront of the biggest growth lenders was Mutual of Omaha Mortgage, rising an impressive 43.1% to 332 loans, the highest volume since the Federal Housing Administration (FHA) changes to the Principal Limit Factor (PLF) in October 2017 . Rounding out this month’s winner was Longbridge Financial, which rose 9.4% to 163 loans.

While the volume is still high considering this is another month with more than 4,000 credits, it could still be the beginning of a possible concern about the way the data is going, says Lunde.

“I view the last few months as high enough not to warrant any concern, but rather the beginning of concern that volume may be trending down more markedly,” Lunde told RMD. “We’ve seen a decline in previous indicators like case numbers and applications, so we just have to see if this continues.”

The volume at the major lenders – and the second straight month that most of them are not seeing volume increases – could be an additional clue, Lunde says.

“The top 10 lenders and the most important volume regions are leading figures,” he explains. “The lack of strength is the reason the entire industry is currently not growing.”

Another clue is the recent recurrence of a volume streak of over 4,000 units that has not occurred since a previously disruptive change in the industry, he says.

“Our last such streak [of over 4,000 loans per month] ended in March 2018 when the effects of the 2017 PLF changes took effect, ”says Lunde. “So we are really testing the values ​​that we saw before the last major product change / tightening of FHA over 3 years ago.”

HMBS Edition: Refi Burnout Might Be On The Way

According to Michael McCully, partner at New View Advisors, the production of original new credit pools in 2021 is showing a positive trend compared to data from previous years.

“For new issues, each month in 2021 outperforms the same month in previous years,” McCully told RMD. “The production of new issues in June was approximately $ 600 million in 2017, 2018, 2019 and 2020. In 2021 it was $ 823 million. For total emissions, the second quarter of 2021 was a record for the quarter with $ 3.16 billion in HMBS issued. “

The data suggest that the current “boom” seen on the refinancing side may ease due to the observed interest rate activity, says McCully. That also brings with it something that the industry should be aware of in order to keep business in a positive direction when refi volume drops.

“The rates on new production HECMs are at or near the minimum expected rate so refinance burnout should begin, all else the same,” McCully told RMD. “The industry needs to remain vigilant about valuation quality as the impact of lower interest rates, which bring real tangible net benefit to borrowers, wears off.”

New, original pool productions are still in a generally good place, says McCully.

“The volume of new issues remains strong overall. You can expect moderate volume fluctuations from month to month, ”he says.

However, he reiterated that rating quality must remain a priority for industry participants. Recently, given the widespread availability of vaccination against the COVID-19 coronavirus, as well as internal government data suggesting the outdoor-only option for reverse mortgages, the FHA decided to phase out the recently approved rating-only provisions Outside facilities approved by experts less and less.

The appraisers reached by RMD largely praised the step as a step that can increase the quality of the appraisal, since important properties of a property are of course left out in the appraisal process in a purely external inspection.

Read the June HECM Lenders Report at RMI and the June HMBS Issuance Report at New View Advisors.