Reverse mortgage volume fell while HMBS issuance rose slightly in September

The rate environment, lagging case numbers and an issuer pooling four months’ worth of production all combined into the lopsided September metric picture

As the reverse mortgage industry continues its adjustment to the current rate environment and new Ginnie Mae issuer landscape, volume dipped while issuance rose slightly in September.

Home Equity Conversion Mortgage (HECM) endorsements fell by 12.3% to 2,614 loans that month, according to data compiled by Reverse Market Insight (RMI). Part of this drop was telegraphed last month by a noted lag in HECM case number assignments based on Federal Housing Administration (FHA) data, according to RMI.

Meanwhile, the production of new HECM-backed Securities (HMBS) issuance ticked upward slightly in September, largely due to one issuer pooling four months’ worth of production, according to Ginnie Mae data and private sources compiled by New View Advisors.

HECM volume may not be ‘out of the woods’

Only one lender in the top 10 rankings managed to outperform their endorsement tallies last month.

Open Mortgage saw a 2.3% production increase to 44 loans for the month of September, while the least severe drop in the top 10 month-to-month production went to Longbridge Financial, settling at 241 loans last month. That’s down slightly from 244 loans in August.

Of the 10 tracked geographic regions, only the bottom three recorded volume increases led by the Great Plains, rising 14.3% to 64 loans.

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

Still, despite the slowdown in case number assignments showing in last month’s data, they actually rose in September by 18.5%, according to John Lunde, president of RMI.

“The slowdown in case numbers issued is likely related to the challenging interest-rate environment and the time involved for the industry to adapt,” Lunde told RMD. “I’m encouraged by the increase in August and, particularly, it being the highest level for the year thus far, although I always look for multiple months with these figures to confirm the trend.”

Lunde added that the endorsement drop was in not in line with expectations set by last month’s reduction in overall case number assignments. However, he said the lag could still have an impact on the data in the months ahead.

“The drop was a bit less severe than I expected, but we also may not be out of the woods yet from an endorsement perspective,” he said.

Lunde also said he was surprised to see the weak performance of the top seven geographical regions.

“It’s unusual there wouldn’t be at least some pocket of strength in the top regions, but for me, it underlined yet again how big of a miss it is to see New York/New Jersey continually stuck at No. 8 on these reports,” he said. “There’s so much potential there that simply isn’t happening.”

In light of current market challenges, the industry would be served best by having its professionals focus on how they’re appealing to potential customers.

“The [industry must] ensure we’re adapting the message and customer process to the interest-rate environment,” he said. “There’s nothing we can do about the index rates, but the product still enables fantastic planning opportunities for clients when presented properly.”

HMBS issuance ticks up although still historically low

HMBS issuance in September rose to $638 million, up from the $572 million issued in August, according to New View. One hundred and three pools were issued, which is low by historical standards, but the increase in September was largely fueled by Guild Mortgage pooling four months’ worth of issuance all at once after its purchase of Cherry Creek Mortgage earlier this year.

“Guild [issued] $67 million in first participation pools,” New View explained. “Cherry Creek has not issued pools since May; the $67 million represents four months of loan origination — squashing hopes September issuance represents a market turnaround. September issuance was weak by historical standards, about two-thirds of September 2022’s $966 million in new issuance.”

When asked about the rise in HMBS issuance and the overall trend of performance in 2023 — especially after a record-breaking year in 2022 — New View Advisors Partner Michael McCully explained that realities and expectations are aligned.

“2023 HMBS issuance volume is in line with expectations,” he said. “Rising interest rates and flat-to-falling home values affect all mortgage lending, forward and reverse.”

The record-breaking issuance levels in 2022 came on the back of a historic HECM-to-HECM refi boom, but it’s unclear when the market will fully recover. The last time there was a similar bust recovery was roughly a decade ago, McCully noted.

“2014 HMBS issuance volume was $6.6 billion,” he said. “2023 may not reach that level.  Volume jumped 50% in 2015 due to a favorable lending environment, i.e. rising home prices, stable interest rates, and a shift to adjustable-rate HECM.”

However, current industry professionals need to keep the rate environment in mind, McCully said.

“HECM volume is highly correlated to the 10-year Treasury [index rate],” he said. “It’s 4.75% today; the last time it was this high was 2007, before the introduction of HMBS.”

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