Industry performance rose in August, but both raw endorsement volume and securities issuance performance come with notable asterisks.
Home Equity Conversion Mortgage (HECM) endorsement volume increased 6.4% to 2,980 loans in August, another industry high after the tumult seen at the end of 2022 not including artificially boosted volume this past March from the merger of two industry-leading companies. However, a lag in HECM case number assignments at the Federal Housing Administration (FHA) could indicate more depressed volume in the final months of the year, according to data and perspective from Reverse Market Insight (RMI).
Meanwhile, HECM-backed Securities (HMBS) issuance saw a modest increase to $572 million in August from the $518 million figure recorded in July. However, that figure is still far off from the peak in 2022, according to Ginnie Mae data and private sources compiled by New View Advisors.
Volume and case numbers
“We note that endorsements are higher, but case numbers issued have been falling for several months now and this is simply unsustainable,” RMI notes in its commentary accompanying the latest data. “The easy bet here is that endorsements fall in the next month or two, given there were more endorsements this month than case numbers issued in July for just the Equity Takeout segment.”
Equity takeout refers to reverse mortgage loans that are neither purchases nor refinances, a loan type the industry has largely pivoted toward after a sizable refinance boom from the COVID-19 era dissipated last year.
RMI President John Lunde attributed the case number trend to a thorn in the side of the entire mortgage industry: rates.
“I think we’re seeing in the case number assignment data some of the challenge posed by high 10-year CMT rates,” Lunde said. “I don’t think it’s a lack of qualified borrowers so much as the interplay of qualification, value proposition to potential borrowers, and high costs for the industry in reaching those potential borrowers. Right now, the overlap of those factors is significantly stretched by our current macro environment.”
That means that the industry is likely to see some reduced volume activity in the near future.
“I do expect a lull in coming months for endorsements, although December/January are still to be determined,” Lunde said. “We’ll have to see how rates and home prices translate into case number assignments over the next few months for our first indication there.”
That expected lull only reinforces what the industry has had to keep in mind ever since the end of the refi boom, Lunde added: lean on solid referral partnerships and source borrowers that have never had a reverse mortgage before.
“The message is really the same as it’s been for months now, to keep working referral relationships and presenting the unique opportunities this product creates for potential borrowers,” he said. “Inflation remains a risk and guaranteed line of credit access is an ideal solution for many households with substantial home value locked in their equity.”
Only four of the top 10 lenders managed to post volume gains in August, including Goodlife Home Loans (rising 500% to 54 loans); Mid America Mortgage (rising 70.4% to 46 loans); and Fairway Independent Mortgage Corporation (rising 34.5% to 148 loans). Liberty Reverse Mortgage also posted gains, and beginning this month RMI has begun consolidating data from both American Advisors Group (AAG) and Finance of America Reverse (FAR) under data for FAR alone.
HMBS issuance
The new-issue HMBS market certainly improved in August, but the general pace of HMBS issuance is disappointing and has culminated in “a bad summer” for reverse mortgage securities issuance overall, according to HMBS data and an accompanying commentary from New View. Just 97 HMBS pools were issued for the month, which is low by historical standards, New View said.
The impact of the bankruptcy of Reverse Mortgage Funding (RMF) also continues to impact the HMBS market. As noted previously, RMF, which was known as the HMBS market’s “Issuer 42” by Ginnie Mae, continues to account for one-third of all outstanding HMBS, but in August Issuer 42 did not produce any HMBS pools, New View said.
The top issuer of the month was FAR, with a total of $228 million in new issuance. Longbridge Financial was the only other issuer to top $100 million, New View explained. The market continues to lag far behind the totals seen in 2022.
“HMBS issuance set a new record in 2022, with nearly $14 billion issued,” New View noted. “In 2023, HMBS issuers will not come anywhere near those numbers; the first eight months totaled approximately $4.3 billion.”
Original, first-participation pool production rose to $391 million in August, a 17% increase over totals posted in July. One potential bright spot is that smaller issuers appear to be taking advantage of a recent policy from Ginnie Mae allowing for the issuance of smaller reverse mortgage pools overall.
“Notable in the August HMBS issuance data are the 26 pools with aggregate pool size less than $1,000,000,” New View said. “Issuers are taking advantage of the new provision from Ginnie Mae to issue smaller pools, designed to provide warehouse financing relief to Issuers.”
The policy was announced this past February, and at the time Ginnie Mae said that it was in response to the market conditions faced by the reverse mortgage industry.
“The rapid rise of interest rates and the current economic climate is creating liquidity pressure for HMBS Issuers obligated to fund borrower draws and make timely payments to HMBS investors under Ginnie Mae’s Guaranty Agreement,” Ginnie Mae said in an announcement of the policy in February. “Ginnie Mae is reducing the minimum HMBS pool size to relieve this pressure and decrease the amount of time Issuers must carry balances between the HECM loan origination disbursement and HMBS securitization.”
