New reverse customer share increases as market shifts away from refis

RMI data shows that while volume remained low, the share of new customers increased in January

Despite lower monthly Home Equity Conversion Mortgage (HECM) endorsement volume, the share of customers who had never before interacted with the reverse mortgage industry increased in January, according to data released by Reverse Market Insight (RMI).

HECM case numbers rose in January to 3,186, while equity takeout cases — which are classified as new reverse mortgage loans that are neither purchases nor refinances — increased 18.1% to 2,690. Comparatively, the number of H2H cases increased to 359.

“[H]igher lending limits could not overcome the rise in rates and resulting lower proceeds available to borrowers,” RMI said in its data commentary.

When asked about the new-to-reverse customers, RMI President John Lunde told RMD that the latest FHA case numbers are encouraging. However, the next few months of the trend are dependent on other facets of the business.

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

“I think a lot of what happens over the next few months will depend on bond markets given the volatility we’ve seen in both the 10-year CMT that is so important for initial principal limit calculations, but also widening spreads on HMBS trades,” Lunde said. “Both of those have been quite volatile in the wake of recent bank failures and ongoing concerns in the banking/financial system.”

On balance, Lunde explains, the effect on HECM originations has been a net positive.

“Even if we saw further weakness in home prices as a result of this turbulence, it would benefit the value proposition of a HECM as a guaranteed source of liquidity in uncertain times,” Lunde told RMD. “I’m hopeful we’ll continue to see equity takeout case numbers issued rise.”

The reverse mortgage industry has been faced with reduced volume following the end of the H2H volume boom that occurred between 2020 and mid-2022. In turn, efforts to grow business in 2023 have focused on new borrowers, as H2H refis have lesser appeal due to higher interest rates compared to the rates during the COVID-19 pandemic.

But even in the midst of the refi boom, industry analysts recognized that rates would not remain low over the long term, and that new borrowers would be critical to the business.

According to HUD data compiled by New View Advisors, HECM-to-HECM refinance activity dropped to 10.7% of all reverse mortgage endorsements in January, a sharp decline compared to the pandemic period, when refis accounted for up to 50% of all HECM volume.

HECM-to-HECM refinances accounted for 45.9% of all HECM loans in 2021. HECM refis made up roughly 25% of endorsements in FY 2020, according to data released in 2021.

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