Reverse

Reverse mortgage volume, securities issuance decline in June

HECM endorsements fell 14.4% in June, while HMBS issuance was down $29 million compared to the prior month

After the reverse mortgage industry’s key performance metrics rallied in May, June fared slightly worse than previously telegraphed by case number assignments.

Home Equity Conversion Mortgage (HECM) endorsements fell by 14.4% in June to 2,105, while HECM case numbers for May dropped 7.9% to 3,214. This is according to data compiled by Reverse Market Insight (RMI).

Meanwhile, HECM-backed Securities (HMBS) issuance also fell by $29 million in June to a total of $497 million for the month. There were 86 pools issued, the same number as in May, and only slightly less than the 89 pools issued in April. This is according to Ginnie Mae data and private sources compiled by New View Advisors.

HECM volume: Some major lenders buck trend

Despite the industrywide drop in volume, four of the top 10 reverse mortgage lenders in the country recorded gains in June.

Finance of America (FOA) added 4.1% to its endorsement tally to finish at 534 loans, after lagging behind Mutual of Omaha Mortgage in recent months. Guild Mortgage also posted a gain of 19.1% to 56 loans, while South River Mortgage and HighTechLending also managed positive growth in June.

When asked if the decline in case numbers could lead to a more tepid summer of originations, RMI President John Lunde said it was likely.

“From a case number perspective I don’t think we’ll see dramatic growth in endorsements this summer, but more of a sideways action in the recent range,” he said.

Each type of reverse mortgage use case also declined in June. “Equity takeout” loans — reverse mortgages that are neither purchases nor refinances — dropped by 4.8% from May. Purchases fell by 10.8%, while HECM-to-HECM refinances saw a large drop of 27.5%.

“It doesn’t surprise me that refis declined since it was likely driven primarily by the lending limit increase earlier this year, which was always a very limited opportunity without rates declining significantly,” Lunde said of the data. “Purchase is one we’re watching closely with the recently implemented tweak to closing costs that we expect to open that door more fully. Equity takeout is the most stable as the largest segment so the lower volatility in May makes perfect sense.”

When asked how four of the top 10 lenders managed to avoid decreases in their endorsement totals in June, Lunde said that geography is a key predictor of how such things can play out. Individual choices that lenders make in appealing to potential clients often dictates their own performance.

“Geographic regions are usually more aligned with overall industry trends, whereas individual lenders can create significant performance gaps purely from business decisions like marketing spend increase/decreases, prioritizing or de-emphasizing endorsements from a resource perspective, or farming attractive in-house sales niches (like forward loan officer relationships or servicing portfolios),” he said.

Geographically, the region that endured the least severe drop is the industry’s most prominent one. The Pacific/Hawaii region fell by only 2.6% to 594 loans for the month.

As FOA and Mutual of Omaha continue to battle for reverse mortgage industry supremacy, Lunde and RMI will be watching closely, he said.

“I do watch with interest as these two compete for the top spot for the foreseeable future as they are very different stories,” Lunde explained. ”Mutual of Omaha has a great brand and customer base outside of reverse that provides a tailwind while FOA has led the industry for several years in wholesale and acquired the largest lender with a particular strength in retail. We’re excited to see both challenging to be the champion.”

HMBS issuance: Moderate dip maintains historic low

As has been the case for a while, HMBS issuance remains at historically low levels, and is not expected to reach anywhere near the records set in 2022 by the time this year winds down, according to New View commentary that accompanied the data.

HMBS issuance fell by $29 million from May to a total of $497 million in June, but the same raw number of pools were issued in June as in May (86 pools). Among leading companies, FOA again claimed the top issuer spot with $159 million, a $2 million increase over May’s figure.

Longbridge Financial saw an $8 million month-over-month dip to $110 million, while Mutual of Omaha and PHH Mortgage Corp. — which will soon rebrand to Onity Mortgage — issued $95 million and $85 million in June, respectively.

When asked about the variance between the issuance levels of the top companies, New View partner Michael McCully said it doesn’t play much of a role.

“There is nothing to be read from any variance in issuance between the top four issuers; in the aggregate they have maintained a market share between 90% and 95% for years,” he said. “But, 11 issuers overall is over-capacity for an industry projected to originate less than $6 billion in 2024.”

June’s original, first-participation production also saw a decline in June to $331 million, down from $361 million in May. Year over year, new loan production was substantially lower when looking at data from the same period in 2023, New View explained. Of the 86 pools issued in June, 24 were first-participation pools while 62 were tail pools with subsequent participations.

Changes on a monthly basis, McCully said, are largely immaterial.

“The industry is not in a good place with such low volume,” he said. “Let’s see how HMBS 2.0 affects the industry, and whether rates start to trend down more permanently.”

When asked about how New View is projecting issuance for the end of the year, McCully said it’s pretty simple to do.

“All else equal, doubling first half production gives a reasonable proxy for full year issuance,” he said.

New View also published updated HMBS issuer league tables for the first half of 2024, showing FOA with 31.9% of the overall market. It was followed by Longbridge (21.4%), Mutual of Omaha (18.4%), PHH (18%) and Traditional Mortgage Acceptance Corp. (3.6%).

Comments

  1. Let us be clear. It matters little what the case number assignments are after May 31, 2024. Fiscal year 2024 (ending September 30, 2024) is doomed to bear the title of the worst fiscal year for HECM endorsements since fiscal year 2003 for at least 12 months (and hopefully much longer). The basic reason for this conclusion is the time it takes for the average endorsed HECM to go from case number assignment to endorsement. While many believe that the average HECM goes from case number assignment to endorsement in about two months, I believe that the actual time period is just beyond three months but that matters little unless the total case number assignments for June and July exceed 13,000 which is very, very doubtful and even then it is highly dependent on completing endorsement in two months.

    At a 70% conversion rate (from case number assignment to endorsement), it would take over 16,250 HECM applications with case numbers assigned to turn into endorsements in the last quarter of this fiscal year for the total HECMs endorsed in this fiscal year 2024 to reach the total endorsements of fiscal year 2019 of 31,274. It will be a tribute to the tenacity of this industry if the HECM endorsement count for the last quarter of this fiscal year is anything close to 10,000 HECM endorsements. Most likely, the total HECM endorsements for this fiscal year will be much closer to just 27,000 than 31,300.

    The fate of this fiscal year has been well known since at least March 31, 2024. Several of us were convinced of this outcome even before the end of the first calendar quarter of this year. Unfortunately my own prediction late last calendar year was that the Fed would lower interest rates for the first time this fiscal year during June. While I may not have been an ultra optimist, I nonetheless was far less than sufficiently conservative.

    What this all means is that in the last six fiscal years (including this fiscal year), we have experienced the three worst fiscal years for HECM endorsements in over two decades (since fiscal year 2003). As of September 30, 2024, HUD has projected that fiscal year 2022 (our best fiscal year for HECM endorsements since fiscal year 2011) has a negative net present value for future cash flows of $807 million. Too much we have heard how these last six years have been acceptable. For whom? The three worst years in order of lowest HECM endorsements since fiscal 2003 are 2024, 2019, and 2023.

    But then there is fiscal year 2025. While it is natural for salespeople to express optimism at industry events, let us hope that there will be a more measured spirit of realism mixed together with the optimism of last year’s national convention. Unless HUD makes some significant changes or expected rates tumble before July 1, 2025, there is little on the horizon that indicates that fiscal 2025 will be a better year than this or the prior fiscal year.

    While some believe that a more consumption based initial MIP will start turning things around, that again seems overly optimistic. Like the alleged reintroduction of HECM Savers a few years ago, a consumption based Initial MIP has a somewhat hollow ring as to its ability to turn things around for the long-term or its ability to gain overwhelming acceptance by HUD. If that change comes with some other tweaks as is being talked about in the industry, I believe that HUD will see no reason to increase either PLFs or the expected rate PLF floor for years to come. Rather than a success for the industry I believe the talked about changes will result in a slight benefit without any substantial longer-term increase in HECM endorsements beyond say 25%, locking us into a range of 30,000 to 40,000 HECM endorsements per fiscal year (unless expected rates tumble).

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