Reverse Mortgage Refinances Remain Near 50% of Volume in August

Home Equity Conversion Mortgage (HECM)-to-HECM refinances remained at nearly 50% of total reverse mortgage industry endorsement volume in September 2021, according to the newest HECM Endorsement Analytics report published late last week by New View Advisors.

“4,326 HECM loans were endorsed in September, bouncing back after last month to the average pace seen for the past year and a half,” New View writes in its accompanying report. “Total volume increased 17% versus August, another reminder that one month of data, especially endorsement count, is not telling of a market trend.”

However, HECM-to-HECM refinance transactions – which, by definition, serves reverse mortgage borrowers already engaged with the product category as opposed to new borrowers seeking a reverse mortgage – remained at nearly 50% of total HECM volume at the end of the summer, according to the U.S. Department of Housing and Urban Development (HUD)’s August Endorsement Snapshot Report.

Part of this run on refis by the industry is due to the favorable rate environment seen across the mortgage industry more broadly since early 2020, and increasing levels of home price appreciation additionally bolster reverse mortgages. However, rates will inevitably change, and making sure the industry prepares itself for that eventuality will be critical to ensuring a favorable business environment for the reverse mortgage industry according to analysts who previously spoke with RMD.

“Just like in the forward world to the extent originators and companies focus on refinances, it makes for a very volatile, cyclical business dominated by interest rates that are out of their control,” said John Lunde, president of Reverse Market Insight (RMI) to RMD in September. “By continuing to do the harder work of reaching new customers through professional relationships, customer referrals and other means that take longer but are more evergreen, some originators and companies will be much better positioned for when the market is less favorable for refinances.”

Still, leaving potential business on the table is not a good strategy either. Ensuring that customers who can be served by a refinance transaction are taken care of has been a vital component of activity for many of the industry’s major lenders.

Since March, refinance volume has only grown to take on a larger share of total HECM volume. March’s percentage rate of refis stands at 39.7% of the total HECM volume. In April, that figure grew to 41.3%, while May saw 44.3%. June is somewhat surprising, though, since refinance volume took up 49% of HECM volume for the month, totaling over 2,000 loans of the month’s 4,158 figure. The percentage has remained in the same general area over the past three months.

While the industry and some of its stakeholders describe a renewed need to bring additional borrowers into the fold of the industry, we’ll have to see just how long the rate of reverse mortgage refinances can rise over the next several months.

Read the HECM Endorsement Analytics report at New View Advisors.

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