Reverse Mortgage Trade: Refinances Are Nice, however New Debtors Nonetheless Wanted
Many participants in the reverse mortgage industry seem to agree with one core idea: The company’s recent boom in refinancing volumes is generally good, especially when it comes to helping borrowers, but the borrower’s proverbial “pie” is growing, will ensure the long-term success and profitability of the reverse mortgage product category.
While certain individuals within the industry have differing views on whether or not the company can attract enough new borrowers in the future, many seem to share a consensus on what exactly increased funding levels means for the fortunes of the overall business. and what the industry should do in response to these realities when the inevitable refinancing boom fades into the background.
RMD has studied the entire refinancing industry from large lenders to smaller lenders, lenders, brokers, and analysts to share common views on the current state of the refinancing market and what it means to the future of the refinancing industry for the remainder of 2021 and beyond.
Strengths and weaknesses of reverse mortgage refinancing
One big lender who, like many others, is experiencing a refinancing spurt is Reverse Mortgage Funding (RMF). The attitude there is pretty simple: borrowers need to be served, and if that means they are looking for reverse mortgage refinancing then they need a lender to help them with it.
RMF President David Peskin
“Similar to other companies in this area, refinancing activity plays a large role in the overall activity of RMF,” said David Peskin, President of RMF. “Of course, if borrowers can save interest costs or generate additional income due to the current property values, refinancing makes sense for them. This scenario is no different from the forward mortgage sector. “
There is a similar stance with other major lenders, including HighTechLending, according to President Don Currie. The refinancing business has a particularly strong component in the reverse mortgage area, especially since the borrowers supported are already very familiar with the specifics of the loan category. Still, it shouldn’t be at the heart of a reverse mortgage lender’s offerings, says Currie.
“HECM-to-HECM is great business because your clients are familiar with reverse and the learning curve is relatively vertical and the gestation period is much shorter,” he says. “However, it shouldn’t be your primary business model for several reasons. One is that the customer base is limited and many of us target them specifically with marketing, which makes it a very competitive market. This will ultimately lead to high costs for the production of the closed loans. “
Investors may not respond positively to refinancing pools every time, Currie says, as such loans have some specific elements that counter them.
“Our investors don’t like buying HECM-to-HECM pools because borrowers may be older and loan maturities will be shortened so they are not worth as much as loans for younger borrowers,” he says. “If we only focus on older existing reverse borrowers, the overall profitable payments from our investors will be reduced across the industry.”
Not necessarily a cause for concern
However, a national broker does not necessarily agree that there is a blanket cause for concern for reverse mortgage professionals as there are other components that can help make reverse mortgages an attractive option for new borrowers in the country Making future. This is what Scott Harmes, national manager of the C2 Reverse Division of C2 Financial Corp. says.
“We’re not necessarily aggressive when it comes to going and getting [refinance] Business, but if there is a real benefit we will sort it out with the borrower, ”he says. “There is one great benefit to bringing new borrowers into the market and that is this sizeable increase in the number of borrowers [home values]. In 2018-2019, property values have doubled since 2008. Now I believe they have increased 150-200% since 2008-2009. “
This means that a senior who hasn’t cashed out refinancing since the market crash recovered in the late 2000s – which could be a sizable segment of the seniors – now has a reverse mortgage option that they may not have had in years has been available for the past few years.
“That means any senior who hasn’t done a cash-out refi since, say, 2010 will likely have enough equity to be eligible for either an HECM or a proprietary reverse mortgage,” says Harmes. “And that means that the increase in equity means that we have many more new borrowers available.”
What senior refis are saying about the business and trends in the data
Patty Wills, National Reverse Mortgage Retail Sales Director at Open Mortgage, said trends in refinance volume could bring a little silver lining to potential lessons the industry can learn about the business in the future.
“We see the need to increase HECM penetration as another opportunity to rethink some of the fundamentals of reverse mortgages, in addition to our internal reviews of customer service and communications across all reverse mortgages,” Wills told RMD. “We look forward to working with HUD / FHA through NRMLA and other means to make the HECM process less complex and more understandable to the general public. We can only break through this market if we are no longer constantly told that our product is too complicated. “
Reverse mortgage industry analysts have been sounding the alarm over the past few months that the high levels of funding – and the potential existing loans that are eligible for refinance – are a stagnant, nonrenewable resource for the reverse mortgage industry as a whole. However, according to the most recent data compiled by Reverse Market Insight (RMI) and shared with RMD, the reverse mortgage refinancing trend has only increased over the year with no slowing in the immediate future.
The industry operated on the cusp of over 4,000 HECM loans per month in raw volume year-round, which is a pretty strong track record compared to previous years, especially after the 2017 changes to major limiters by the Federal Housing Administration (FHA).
However, as recently noted by analysts and confirmed by RMI data, refinancing volume has grown almost every month in 2021, making up a larger proportion of total reverse mortgage volume. The period between January and February is the only point this year that resulted in a month-to-month decline in refinancing, with the January rate of 36.5% of the total, roughly surpassing the February total of 35.3% 1,500 credits.
Since March, the refinancing volume has only grown to take a larger share of the total HECM volume. The percentage of refis in March is 39.7% of the total HECM volume. In April that number rose to 41.3%, while in May it was 44.3%. However, June is quite a surprise as the refinancing volume was 49% of the HECM’s volume for the month and it was over 2,000 loans from 4,158 in the month.
As the industry and some of its stakeholders describe a renewed need to add additional borrowers to the industry, we need to see how long the reverse mortgage refinance rate can rise over the next several months. As with all things, time will tell.