Home Equity Conversion Mortgage (HECM) rose 3.2% to 4,293 loans in July 2021, marking another month in which the volume of reverse mortgages hit over 4,000 loans and the monthly volume streak above that number eight months increased. This is based on data compiled by Reverse Market Insight (RMI).
In addition, new home equity conversion mortgage (HECM) -backed securities (HMBS) production in the fifth month of the post-London Interbank Offered Rate (LIBOR) era was just over $ 1.1 billion to HMBS Emissions. All told, HMBS issues totaled $ 10.6 billion in 2020, a recent industry high of $ 10.5 billion, according to Ginnie Mae publicly available data and private sources compiled by New View Advisors Dollar dwarfed in 2017.
Both metrics continue to show steady state health for the general industry, but the general strengthening of the industry from refinancing volume remains a problem for reverse mortgage growth, according to analysts speaking with RMD.
HECM endorsements rise as regional performance surprises
While the numbers captured for June showed a general decline in HECM volume and corresponding decline in performance for certain lenders and regions, it was surprising that the trends seen in June in the July numbers were effectively reversed. This is according to John Lunde, President of RMI.
“Last month, larger lenders and regions in general had fared poorly, while that was reversed this month,” Lunde told RMD. “It might just be timing with notes and will likely even out when we get the two months average, so we’ll have to wait to see if those moves are anything significant.”
A major topic of conversation in the reverse mortgage industry lately has centered on the ongoing “boom” in HECM-to-HECM refinancing activity, which is significantly boosting overall industry performance and causing reverse mortgage business to become insufficient attracting new borrowers. While the indication is difficult to analyze from a data point of view, there does not seem to be any significant decline in refinancing at the moment, says Lunde.
“This first volume read does not contain a breakdown by Refis, so it is unknown [what role they played in July]”He said.” But we haven’t seen any signs of refi slowing down. If anything, the growing volume in the larger regions is more likely to indicate continued or even expanded refinancing activity. “
In terms of regional activity, the Pacific / Hawaii region recorded 1,643 loans in July, almost 1,000 loans ahead of the Southeast Caribbean region, which came second. Meanwhile, the Rocky Mountain region gained 8.5% in July to process 537 loans, the largest monthly total in over a year and the only region covered to see volume increases in each of the past two months, described RMI. The profits reported there could have come from the generally underutilized HECM for Purchase (H4P) program, although it is currently difficult to say exactly where the profits came from, Lunde said.
“If you look at it a little closer, the Salt Lake City, Utah office is showing the greatest growth, so I’d say that’s the main reason the area is growing,” he explains. “There was no significant increase in H4P for the state in May, but the state has had strong H4P volume for years. When we get more detailed numbers for June and July it will be interesting to see if that pulls too “or some other source.”
In terms of lenders, Reverse Mortgage Funding (RMF) grew 62.1% to 582 loans, overtaking Finance of America Reverse (FAR) in the rankings and taking second place under the American Advisors Group (AAG). This type of competition seems like a bright spot in terms of what the industry is doing, says Lunde.
“It’s a great battle that is healthy for the industry when key companies are competing for growth,” he said. “It’s great to see that the constant volume is stable so that individuals and companies can focus on the next phase of growth.”
HMBS issue, refi burnout likely
While HMBS issues continued to show strength in July, there could be signs that the current refinancing boom is slowing in the coming months, according to Michael McCully, partner at New View Advisors.
“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.
Still, the reverse mortgage industry could be heading for a record year on the HMBS issuance front, McCully said, citing the last time records were broken and the very different situation that defined the industry in terms of its regulatory reality.
“The industry is well on its way to breaking the previous volume record of 2010 when capital limits were high and no safeguards were in place for borrowers’ financial valuation,” he told RMD. “That record could fall this year as over $ 7 billion was spent in the first seven months, but it remains to be seen how long the refinancing boom can last,” New View said in his comment on the new data.
With regard to what the industry should be doing in the future, McCully reiterated the general idea that valuation quality must be at the forefront of industry concerns in order to provide a demonstrable benefit to borrowers in the event of a change in the interest rate environment.
“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,” said McCully.
Of the $ 1.1 billion in new issuance recorded in July, 106 pools were issued, including 43 CMT pools with first-time participation. Before the beginning of 2021, no new CMT pools were issued for several years due to the switch to the LIBOR index.
Recently, the FHA allowed recently approved regulations to be approved for outside assessment only go out given the widespread availability of vaccinations against the COVID-19 coronavirus, as well as internal government data suggesting that the use of the external-only option for reverse mortgages is becoming less and less used by appraisers.
The appraisers reached by RMD at the time predominantly praised the step as a step that increases the quality of the evaluation, since a purely external inspection naturally leaves out important properties of a property in the evaluation process.