Reverse Mortgage Quantity Drops Sharply in August, HMBS Issuance Stays Excessive
The boom in reverse mortgage volume appears to have slowed for now, at least if new data suggests it.
Home Equity Conversion Mortgage (HECM) approvals fell 14.3% to 3,679 loans in August 2021, with July now marking the end of a series of monthly volumes above a threshold of at least 4,000 units observed since late 2020, based on data compiled by Reverse Market Insight (RMI).
However, the production of new Home Equity Conversion Mortgage (HECM) backed securities (HMBS) recorded just under $ 1.1 billion in HMBS issues in the sixth 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.
The general strengthening of the industry on the volume side from the refinancing volume remains a problem for the growth of the refinancing business, according to analysts who spoke to RMD. One described that the proportion of refinancing volume in August was over 50% of HECM endorsements for the first time.
A sharp drop in reverse mortgage volume
Given where the volume of reverse mortgages has been since November 2020, a fairly abrupt drop of that magnitude is enough to cause some level of concern to RMI analysts, according to the commentary on its latest data release.
“The decline is a little worrying as the industry has been above 4,000 loans for 8 consecutive months, but it remains to be seen if this is a temporary confirmation message,” RMI said in the comment.
This thought was also shared with RMD by RMI President John Lunde, who said that while the industry should be watching the data, it was too early to say if this was the start of a general trend in volume.
“Here I always hesitate to read too much into a single month number,” Lunde told RMD. “September notes should tell us if this is a trend or just a slip up.”
In terms of regional performance data, the Great Plains region excelled in August, seeing a 20.5% increase in reverse mortgage volume to 53 loans, an outlier in a month that saw the volume of every other major region covered simultaneously decline with the rest of the industry. The regions with the lowest declines include Rocky Mountain, which fell 6.9% to 500 loans, and New England, which fell 8.6% to 85 loans.
“[The Great Plains’ numbers] seems to be more of a time difference to other regions as the total was relatively poor in July, ”Lunde said of the regional data.
In terms of top lenders for the month, three of the top 10 saw volume increases compared to their July totals. The leading increases in volume were Mutual of Omaha Mortgage (up 45.6% to 316 loans), Longbridge Financial (up 34.2% to 157 loans) and Fairway Independent Mortgage Corp. (plus 15.7% on 118 loans).
For Mutual of Omaha, August is definitely stronger than last month’s total and seems to be led by volume beyond refinancing, Lunde said.
“It’s a strong recovery from a bad July, however [Mutual of Omaha] was consistently below the industry’s refi share so I wouldn’t expect that to be the reason for August’s strength, ”he explained.
Despite the lower sales figures, Lunde remains optimistic about the outlook for the industry through to the end of the year.
“I think the industry is well positioned to expand the reach of new borrowers and to bring attention to this front when the refis wear off, although there are inevitable lumps in the adjustment phase,” he said.
HMBS issue continues to hold strong
According to New View Advisors, the HMBS issue for August looks “strikingly similar” to the previous month’s data. Despite the decline in HECM endorsement volume, the position of the HMBS issue as an indicator of the overall health of the industry shouldn’t be underestimated, said Michael McCully, partner at New View Advisors.
“While August showed a decline in the number of endorsements, HMBS dollar issuance – a more accurate predictor of issuance volume – remained robust in August,” McCully told RMD. “It’s too early to say if refi burnout has started.”
As it appeared a month ago, the reverse mortgage industry could be heading for a record year on the HMBS issuance front, McCully said.
“All other things being equal, the industry is well on its way to breaking its previous HMBS annual record for dollar volume,” said McCully.
A month ago, McCully cited the source of his case for RMD: The last time records were broken and the very different situation that defined the industry in terms of its regulatory reality.
However, that doesn’t mean the industry should put aside any vigilance and rely solely on a single metric for a perspective on the overall health of the industry. Decreased issuance volume – especially in the sense that over 50% of referrals were refinancing according to New View in August – could have a bigger impact on the industry, aside from a simple refi burnout depression volume, McCully said. With this, the industry can target a specific target for the development of the 2022 business.
“Persistently high refinance rates, even if the tangible net benefits for borrowers decline, could leave seniors vulnerable to misleading advertising, exaggerated ratings and other forms of coercion,” McCully told RMD. “2022 should be the year to focus on organic growth. Interest rates are unlikely to fall and property values will stagnate, leaving little room for legitimate refinancing volumes. “
Out of the approximately $ 1.1 billion in new issues recorded in August, 107 pools were issued, including 42 CMT pools with first-time participation, which is very similar to the data recorded by New View for the previous month. Before the beginning of 2021, no new CMT pools were issued for several years due to the switch to the LIBOR index.
Read the HECM Lender Report at RMI and the two HMBS Issuance and HECM Endorsement Analytics reports at New View Advisors.