With ongoing liquidity challenges and a continuing lag in Home Equity Conversion Mortgage (HECM) case numbers, reverse mortgage business in 2024 started off with a bit of a whimper.
Both HECM endorsements and HECM-backed securities (HMBS) issuance saw modest declines in January, although four of the top 10 HECM lenders managed to post slight gains for the month. This is according to HECM endorsement data compiled by Reverse Market Insight (RMI), and HMBS issuance data from public Ginnie Mae data and private sources compiled by New View Advisors.
HECM volume, inbound inquiries
HECM endorsements fell on a per-unit basis by 1.7%, according to RMI, to 2,153 loans for the month of January. Among the top 10 lenders that posted gains, the biggest performer was Goodlife Home Loans, which recorded a 27% gain to 47 loans, followed by Fairway Independent Mortgage Corp. (up 19.1% to 106 loans), Finance of America Reverse (up 17.7% to 592 loans) and Longbridge Financial (up 7% to 258).
“The key is non-refi case numbers issued right now, so we’re less worried about endorsements at the moment since case numbers are so low,” RMI President John Lunde said when reached by RMD.
Outreach to individual reverse mortgage originators has seemed to indicate a perceived rise in inbound inquiries, but inquiries do not always result in closed loans. When asked if this could be “noise” or if it could lead to a change in volume levels, Lunde expressed cautious optimism.
“We’re seeing expected rates roughly a point less than what we saw at the 10-year CMT (constant maturity Treasury) peak recently in October, which has a huge impact on borrower qualification and originator marketing results,” Lunde said. “There’s always been a seasonality to the industry where the holidays are significantly slower than immediately before and after.”
Among the tracked performance regions, RMI singled out New England as having particular momentum, which could result in it overtaking the New York/New Jersey region if the trend persists.
“I think it speaks to the regulatory challenges in New York primarily, along with the inability to do co-op properties in the HECM program,” Lunde said. “New York could be so much bigger than it is now, but those two definitely limit things relative to other states.”
New York passed a law in 2021 that allows for proprietary reverse mortgages to be conducted on co-ops, but HECM loans do not qualify.
Case numbers, looking ahead
Case number data for November 2023, which RMI characterized as “disappointing,” was also released. Cases dropped 22% from October, steeper than the decline one year prior when the HECM-to-HECM refi boom dried up.
But things could turn around, Lunde explained.
“Seasonality is in our favor now and the significant drop in the 10-year CMT is a huge help,” he said. “The other two big things that originators are more in control of is orienting their efforts toward purchase business now that HECM offers similar seller concessions as competing forward loans, which is huge, and working with advisers to develop relationships with mutually beneficial referrals.”
RMI will be exploring more on these topics in the future, Lunde said, calling them “the future of reverse.”
As for what originators should keep in mind as they progress further into the year, Lunde said there is reason to be optimistic.
“We have significant support for positive program changes to both [the HECM and HMBS] programs, which could really help things,” he explained. “But originators should keep in mind how long those take to transpire and just how out of their control those factors are. Focus on the hard work of building a sustainable referral business and the tools that can help you do that. If a windfall comes from further rate drops or program changes, so much the better.”
On the securities side of the equation, issuance in January fell to $445 million, down $12 million from December. The January tally of 79 pools issued was flat compared to December and, barring the early days of the Ginnie Mae HMBS program in 2009, it was the fourth-lowest monthly tally ever, according to New View Advisors.
Finance of America Reverse remained the top issuer in January at $155 million, a slight $2 million reduction from the prior month. Longbridge posted a $3 million gain in issuance to $93 million, while Liberty Reverse Mortgage/PHH Mortgage and Mutual of Omaha issued $83 million and $75 million, respectively.
“Issuer 42,” the designation applied to the former Reverse Mortgage Funding (RMF) portfolio now under the control of Ginnie Mae, again issued no HMBS pools in January.
The month’s original, first-participation production fell visibly below year-ago levels, hitting $282 million last month compared to $347 million in January 2023. Of the 79 pools issued in January, 21 were first participations, while another 21 pools of the full total had “aggregate pool size less than $1 million,” stemming from a Ginnie Mae HMBS policy introduced last year.
“2024 is off to a slow start with January 2024’s issuance volume being $78 million less than January 2023’s issuance,” said Michael McCully, partner at New View Advisors. “We expect to see similar industry volume for 2024.”
New View expects HMBS issuance will once again fall well below the record-setting levels of 2022, which saw $14 billion in volume. In 2023, issuance failed to reach half of that level, settling in at about $6.5 billion.
When asked if the new Ginnie Mae policy that allows for smaller HMBS pool sizes could make a difference this year, McCully said it was possible, but that does not mean it will impact the final issuance figure all that much.
“The smaller and more frequent pool issuance helps liquidity but does not have a material impact on origination volume,” he said.
When asked what industry professionals should most keep in mind heading further into 2024, McCully was concise.
“Interest rates remain our bellwether; as the 10-year goes, so goes the industry,” he said.