Merger-fueled spike for HECM endorsements in March as HMBS issuance dips

As the industry saw consolidation in the month of March, endorsement volume shot up while HMBS issuance slowed yet again

As the merger transactions for companies like American Advisors Group (AAG), Finance of America Reverse (FAR) and Cherry Creek Mortgage played out in March, reverse mortgage endorsement volume saw a notable spike.

Home Equity Conversion Mortgage (HECM) endorsements increased in March by 73.4% to 3,789 loans, the highest recorded since August of 2022, according to Reverse Market Insight (RMI) data.

Conversely, the production of new HECM-backed securities (HMBS) fell again last month, according to data from New View Advisors. In March, new HECM-backed securities production dropped to $442 million, down from $507 million the month prior.

M&As fuel endorsement volume

AAG informed wholesale partners in February that its impending acquisition by Finance of America Companies (FOA) meant loans in process would need to be funded by March 31 and its existing wholesale division would stop accepting new loans on March 1.

John Lunde, reverse mortgage industry analyst and president of Reverse Market Insight (RMI).
John Lunde

The push to get loans out of the pipeline likely contributed to AAG’s high endorsement totals in March. According to RMI, AAG’s totals increased by 320.9% for the month, settling at 1,970 loans. That translates to 93.6% of the total gain for March compared to February.

The spike observed for Cherry Creek was also considerable, increasing 119.4% to 79 loans ahead of that company’s acquisition by Guild Mortgage, which will lead to Guild expanding its efforts in the reverse business.

“I don’t know that we’ve ever seen two top 10 companies being acquired at the same time, but it’s not unusual to see endorsements ebb and spike around these kinds of events since lenders have more flexibility on timing here,” said RMI President John Lunde. “Endorsements are only indirectly tied to financial performance that might otherwise incent quicker, more consistent volumes.”

The FAR/AAG deal closed at the start of April, combining two of the largest players in the industry. When asked if that will lead to a sizable reduction for April, Lunde said it was likely.

“I don’t expect the March spike to be repeated, so April is likely to be significantly lower,” he said. “That said, we have been seeing small, encouraging signals in case numbers issued data that should flow through and potentially grow at a slower pace once the acquisition noise recedes.”

Still, not all volume increases were attributed to acquisition activity. Multi-channel lender Open Mortgage also saw a volume spike, rising 50% to 90 loans for the month.

“I do think there are encouraging signs for modest growth from the lows seen in January and February, so Open and others could prove that out,” Lunde said.

Reverse Mortgage Funding for the first time recorded zero endorsements in a given month. In February, it logged a single endorsement, and Lunde expects that its time logging any new endorsements has come to an end. As of March, RMF is listed as the sixth-largest industry lender and it will continue to fall as the year progresses. In the 12 months ending in March, RMF logged 2,811 loans.

HMBS issuance drops

Only 53 HMBS pools were issued to total $442 million in issuance in March, marking the lowest issuance month since June 2014. When asked about how previous periods of industry exit and consolidation compared to March, the exits from large financial institutions came to mind for Michael McCully, partner at New View Advisors.

“In 2011 Wells Fargo, Financial Freedom, and Bank of America left the industry,” he said. “It was the last time annual origination volume exceeded 100,000 units.”

The total number of HMBS issuers is down to four, with approximately 90% of total market share after the completion of the FOA/AAG deal, New View said in its commentary accompanying the data.

“In its last month, AAG still led HMBS issuers with $106 million issued,” New View added.

In regard to the FOA/AAG transaction impacting HMBS issuance in the months ahead, McCully did not see a direct correlation.

“The March spike is almost entirely attributed to last-minute AAG loans submitted for endorsement,” he said. “Future volume growth remains contingent upon borrowers needing access to home equity, regardless of rates and current principal limits.”

Bringing the issuance market back up to a higher level of activity is contingent on borrowers requiring access to their equity, he said.

Fed policy also plays a role in the state of the HMBS market to a point, McCully said.

“Only in that rising interest rates lower origination volume, all else equal.”

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