Reverse volume and HMBS issuance inch up as refi levels stay low

Volume and HMBS issuance posted gains in May while refis reflect the high-rate environment

After a sizable drop in reverse mortgage endorsements in April, the industry is now showing signs of resiliency.

In May, HECM endorsements increased by 4.6% to 2,053 loans, a slight recovery in performance from the sizable drop in April, according to data compiled by Reverse Market Insight (RMI). The shift with American Advisors Group (AAG) has continued to affect the industry and in April played a large role in the decline in volume.

The production of new HECM-backed securities (HMBS) increased slightly in May, however, to its best month of 2023, according to GNMA and private data compiled by New View Advisors. New HECM-backed securities production reached $580 million, up from $534 million the month prior.

Finding the industry footing

The industry could be making adjustments to improve its posture in a difficult environment punctuated by high rates and an active lender community, according to John Lunde, president of RMI.

“I think the industry has found its footing in the current macro environment, as we’ve seen higher case number issuance since the start of the year and a small but steady uptrend in endorsements to match,” Lunde said.

Though adjustment may have been difficult after the HECM-to-HECM (H2H) refi boom over the past couple of years, originators are working to acclimate to current business realities, Lunde said.

“I believe originators have re-focused their efforts on bringing new customers to the industry and accepted that refis are not the way forward, which ties back into the tailwind the industry has always had in being a great option for tens of millions of households with the majority of their wealth tied up in home equity,” he said.

While eight of the 10 tracked geographic regions posted gains, three of the four regions that are typically smallest for volume posted the largest gains, according to RMI. There’s currently not a complete answer for why, but it is something that RMI will pay attention to, he said.

“This is one I’ll keep an eye on for the future, as I don’t yet have a clear picture of why smaller regions might be positioned better in this environment than larger ones, and it’s also important not to get overly distracted by small figures here,” he said.

Lunde also noted that any “bump” in volume for FAR related to business from AAG has not yet materialized in the data. When asked if that means FAR and the second-largest lender, Mutual of Omaha Mortgage, could compete for top spot, Lunde confirmed.

“I do think it will be a great competition for the industry,” Lunde said. “If AAG translates well to FAR volume post-acquisition, then FAR as number one is a foregone conclusion. But until we see that show up meaningfully in the numbers, Mutual of Omaha is the obvious choice to step up.”

Refi, HMBS issuance shares

Lunde’s originator observations seem to be evident in data from the U.S. Department of Housing and Urban Development (HUD)’s “HECM Snapshot” report for April. The report, as reviewed by New View Advisors, indicates that the share of H2H refis remained stable in May compared to the rest of 2023 at roughly 10% of industry volume.

This is a far cry from the pandemic highs in which refi volume made up half or more of the total activity for the industry.

“10%, give or take, had been the long-term refi percentage prior to the pandemic-driven interest rate drop and refinance boom,” New View said in its report. “As long as rates remain high and property values stable or falling, don’t expect meaningful refi volume to return any time soon.”

HMBS issuance activity posted its biggest month of 2023, but that isn’t saying much when compared to some of the highs seen in recent history, New View said in its HMBS Issuance report.

“Strong tail issuance masked a decline in new loan production,” New View said in its commentary.

After FAR’s purchase of AAG, four HMBS issuers maintain 90% market share of the reverse mortgage secondary market, according to New View. FAR was the top issuer in May with $200 million, the commentary said.

Last year led to an all-time HMBS issuance record of $14 billion. While metrics have somewhat improved recently, the industry is unlikely to come close to that record-breaking figure by the end of 2023. Tthe industry has issued just over $2.5 billion over the past five months.

The creation of new, first-participation production fell slightly in May to $353 million, just above what has been seen for most of 2023: $374 million in April, $259 million in March, $322 million in February and $347 million in January.

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