The reverse mortgage business has had a tumultuous 2023 that has included low loan volume, liquidity challenges and a raft of new government policy related to the Home Equity Conversion Mortgage (HECM) program in particular.
But the industry is looking ahead to the new year. With recent news indicating that some rate relief could be on the way, lenders themselves are also looking at an increase in the HECM limit for 2024 and potential new opportunities in the proprietary space to increase momentum after a disappointing year of reverse mortgage volume.
The past year wasn’t all bad. There have also been a series of government policy changes for the HECM program welcomed by the industry, granted by an engaged U.S. Department of Housing and Urban Development (HUD), Federal Housing Administration (FHA) and Ginnie Mae on reverse mortgage matters.
Arguably one of the biggest HECM developments for 2024 is the increase in the HECM limit, announced by HUD in November. Reverse mortgage industry professionals were largely positive on the news, saying that it would allow the industry to serve more borrowers potentially. Still, such an attitude was not universal among industry participants who spoke to RMD.
“Raising the MCA does not increase HECM originations, it decreases HECM originations,” said Michael McCully and Joe Kelly, partners at New View Advisors to RMD in early December.
Since HECM volume fell by 33% from 2021 to 2023 despite annual increases in the limit, raising it by 5.6% — from $1,089,300 in 2023 to $1,149,825 in 2024 is unlikely to have an impact, they said.
“Raising the [limit] also increases HECM program risk by increasing geographic concentration in riskier housing markets.”
Still, most industry professionals expressed that raising the limit could allow originators to revisit borrowers who may not have qualified under the previous year’s terms, and that “check-in” calls with those borrowers could yield business.
Reverse mortgages and macroeconomics
While the business challenges have been tough to weather — as exemplified by certain exits and consolidations — many of the challenges don’t have a lot to do with the actions of the companies themselves, according to Chris Moschner, chief marketing officer at industry leader Finance of America Reverse (FAR).
“I think it’s obviously about the macros, I don’t think it’s anything about the companies themselves,” he told RMD in an interview. “It’s strictly related to the health of the bond market, the rates and our own ability to invest in the short term. But I think all of the ingredients and all of the tools for success are what this category has been laying down for a long time.”
One of those tools is borrower education, Moschner said. Educating potential customers is a consistent priority of the reverse mortgage industry. The necessity of investing in education will not go away anytime soon, he explained.
“We know that we’ve got to do a better job of educating our customers, and that education continues to be a barrier, but that’s not a problem that’s solved overnight,” Moschner said. “That’s a problem that’s solved with content, with influencers, PR, marketing, advertising and messaging. There are multiple ways that’s done, and it just takes time, money and commitment.”
Private-label reverse mortgages
Although focus on private-label reverse mortgages has shifted in recent years, two leaders in the space — FAR and Longbridge Financial — have signaled an increasing level of importance for the reverse mortgage product category outside the purview of the HECM program.
FAR’s product suite, “HomeSafe,” will get a new chance to appeal to seniors with the incorporation of the AAG brand, while Longbridge will continue offering its “Platinum” products in the new year.
The rate environment has been improving, and recent information also indicates that the Federal Reserve could call for interest rate cuts in the new year. In a Q3 earnings call earlier this year, Laurence Penn — CEO of Ellington Financial, the parent company of Longbridge — spoke about the developments for the lender despite prevailing industry headwinds.
“You’ve seen the market shrink but then again, you’ve also seen one very notable player and other smaller players sort of go by the wayside,” Penn said in November. “So we see Longbridge as having a larger market share in a market that is smaller, but then the [private-label] business has a lot of room for growth.”
That growth on the private-label side, which comes from Platinum, stems from borrowers seeking the private product out who have much higher loan values, which leads to more profitability on a loan–by–loan basis he explained.
“And you’re talking about borrowers that may not be as sensitive about taking out less proceeds,” he said. “So looking forward, the long-term prospects, we think, are really good for Longbridge and they continue to gain market share.”
From product development sidelines to the bullpen
Professionals who have recently joined FAR told RMD that having the opportunity to shape the direction of the HomeSafe product suite is not something they’ve had a chance to do before, particularly for those joining FAR from AAG.
AAG actually offered FAR’s product in a correspondent partnership for years, but now there is an opportunity to actually shape the products and their features for customers according to Paul Fiore, chief sales officer at FAR who moved to the company from AAG with the acquisition.
“[HomeSafe helps us to] see where there are gaps that we could potentially fill and help people where maybe the HECM product’s not serving those needs,” Fiore said. “[We can also find out] where we can be more creative with some of the proprietary products we have, that’s been a really interesting and cool dynamic for me.”
Correspondent access to HomeSafe at a rival lender is one thing, but being a part of the company that created HomeSafe allows for a whole other level of involvement with its dynamics, Fiore explained.
“I had access to proprietary products at AAG, but it was really Finance of America’s proprietary product,” he said. “So, we didn’t really have a hand in discussing what opportunities may exist in enhancing it or making it more accessible for people.”
Government engagement with the industry was high in 2023, with both HUD and Ginnie Mae announcing a series of HECM and secondary market policies designed to increase liquidity in the space and ease operational burdens for lenders and issuers.
Some examples include FHA finally publishing a series of long-awaited revisions and consolidations to the HECM section of its Single Family Housing 4000.1 Handbook, proposing a seller credit for the HECM for Purchase program and expanding reverse mortgage eligibility criteria.
In an interview with RMD conducted this past fall, Ginnie Mae President Alanna McCargo said that the assumption of the Reverse Mortgage Funding (RMF) portfolio was going smoothly based on a lack of impact on affected borrowers. The reverse mortgage industry itself has largely lauded the additional attention that HUD, FHA and Ginnie Mae have paid to its affairs.
But within the government itself, other challenges have emerged. The HUD Office of the Inspector General said that the HECM-backed Securities (HMBS) portfolio could present a “significant risk” to HUD in 2024, and opened an inquiry into the government-owned company’s handling of the RMF situation, particularly the lender’s extinguishment from the HMBS Issuer program.