Reverse mortgage retail channel leads summer volume decline, refi share drops sharply

While both retail and wholesale dropped pretty evenly for that month, August data and broader trends paint a broader picture of the current climate

Home Equity Conversion Mortgage (HECM) endorsements fell by 17.1% in the month of July 2022, for a total of 4,915 loans according to the latest HECM Originators report from Reverse Market Insight (RMI). The fall comes on the heels of dissipation in reverse mortgage volume sourced by HECM-to-HECM (H2H) refinance transactions, which propped up industry volume for a sustained period.

The drop was led by the retail endorsement segment of business, which experienced a decline of 19% that month, while the wholesale segment of the business recorded a slightly less severe drop of 14.7% in the same period.

Drop in reverse mortgage volume and divide between business channels

Nine of the top 10 lenders saw volume reductions in July, with Mahwah, N.J.-based Longbridge Financial remaining the only top 10 lender to grow its volume compared to the prior month, rising 30.3% to 945 loans. In terms of this specific report as compiled by RMI, that is an all-time high for Longbridge.

Case numbers for H2H transactions saw a sharp reduction for the month, falling to 1,023 in July from a peak of 3,848 in August, 2021. In contrast, there were 3,547 new-to-reverse customers for the month, which RMI characterizes as generally level with the preceding three months of data.

When the original raw volume data for the month was published in July, RMI President John Lunde told RMD that technical changes at the lenders themselves likely account for some fluctuations in volume levels, but the next few months will be telling in terms of how well the major lenders are weathering the change in refi-focused business.

Raw volume in August, H2H boom dissipates

Interestingly, raw volume data for August shows that the drop observed industry-wide in July was almost entirely made up for, according to an RMI data release earlier this month. HECM endorsements rose in August 2022 by 16.2% to 5,727 loans, raising volume levels above 5,000 monthly units once again. Channel-specific data for August will likely become available in the next few weeks.

While both March and April featured historic production of over 6,000 loans — a threshold that would’ve seemed highly unlikely just a couple of years ago — the dissipation of the H2H refinance boom is starting to have an impact. The sharp drop in H2H volume based on case number assignments could add further credence to recent guidance that analysts at RMI and elsewhere have been repeating for the last several months: that as refi volume dries up, the reverse mortgage industry would do well to focus on the acquisition of new customers who do not currently have a reverse mortgage.

“While refis have been great, we also [need to ask] how we can get to those next borrowers,” RMI President John Lunde said at a reverse mortgage conference in July. “Not the same borrowers again, though we should definitely serve them. When a refinance makes sense, great. But, we can’t lose sight [of the fact] that this industry needs to grow. That’s the only way to succeed as a whole industry and as individual professionals.”

Refi booms understandably provide demonstrable business opportunities for the industry, but a focus on new borrowers will help ensure ongoing viability, Lunde explained.

“We are much more interest rate-sensitive based on those 2017 product changes, so we need to adapt to the idea that, just like in the forward world, refi booms are great,” he said at the event. “But, there’s a reason there’s a refi cycle. They’re more interest rate-sensitive. Yes, we still have the tailwinds on the property prices side, but we need to always continue to keep the focus on the more basic [goal of] adding new customers to this world.”

Wider market implications

Other, broader market indications could also have a potential impact on reverse mortgage activity. Interest in Home Equity Lines of Credit (HELOCs) has risen recently, with reverse mortgage professionals recently explaining to RMD that the broader conversation about incorporating home equity into a financial plan — a conversation that the reverse mortgage industry has emphasized for years — could provide a potential “golden opportunity” when aiming to enlist new borrowers to take out a reverse mortgage, according to PRMI Reverse Mortgage Division President Steven Sless.

“[That’s particularly true of] the line of credit option as a viable alternative to a traditional HELOC,” Sless told RMD in late August. “We should be communicating the benefits of a reverse mortgage over more traditional methods of accessing home equity while articulating the similarities between these other options and their reverse cousins. The more we relate reverse loans which are often misunderstood to loans that the consumer better understands, the more comfortable consumers and financial professionals become with our products.”

The pace at which interest rates are moving could also have a potential impact on reverse mortgage industry activity, with the latest weekly survey data from Freddie Mac showing that the 30-year fixed-rate mortgage has risen to an average of 6.02% this week. This comes ahead of the Federal Reserve’s much-anticipated interest rate hike next week, according to Connie Kim’s reporting at RMD’s sister publication HousingWire.

Lunde previously detailed for RMD that the HECM Originators report is useful in seeing the splits in and health of the retail versus wholesale channels, which helps to illustrate how lenders are doing from a more individualized and channel-specific perspective.

Read the HECM Originators report at RMI for segmented breakdowns and regional performance data.

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