Reverse mortgage volume collapses in February, HMBS remains stable

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Home Equity Conversion Mortgage (HECM) notes in February were down 10.4% last month to 4,066 loans. However, this level of business is still encouraging to an industry analyst as it is again above 4,000 loans but represents the first drop in volume since a surge between December 2020 and January 2021. HECM volume was previously on a downtrend in the final months of 2020 before December, according to data compiled by Reverse Market Insight (RMI).

In addition, the production of new Home Equity Conversion Mortgage (HECM) -backed securities (HMBS) saw HMBS issues totaling 872 million. In total, HMBS issues totaled $ 10.6 billion in 2020, according to Ginnie Mae publicly available data and private sources compiled by New View Advisors dwarfed a recent industry high of $ 10.5 billion in 2017.

Reverse Mortgage Endorsement Volume

Despite the fact that the volume fell slightly between January and February, the level of the industry’s new HECM volume is still in positive territory based on factors solely beyond the raw volume. This is according to John Lunde, President of RMI.

“I think we are still in very good shape from an industry volume perspective,” Lunde told RMD. “Here I look more at the number of cases that were given here as a leading indicator, and although November / December were slightly lower than in previous months, this fits in with the normal seasonal pattern with the holidays in previous years. I think we’re still trending as the pandemic has ushered in a new era for the industry in terms of borrower rates, but especially with refinancing driven by soaring house prices and low interest rates. “

Competition between some of the largest lenders in the industry also appears to be intensifying, which could lead to multiple lenders being re-appointed to the top 10 rankings, Lunde says.

“We are seeing several emerging lenders lately who have been in the industry for years but have really been ramping up their volume lately to compete for the top 5 spots,” says Lunde. “I would say Fairway, Longbridge Financial and Open Mortgage (ranks 6th, 7th and 8th respectively) are all doing well and trying to oust one or more of the established market leaders above them. Everyone has a slightly different story, but from my point of view it speaks volumes for both long-term investments and commitment to the business that pay off. “

Outside of the top 10 lenders, other lenders are making significant strides in terms of volume compared to last year, says Lunde.

“To stick with our topic of longtime industry participants, who have really increased lately when we look outside the top 10, I would point out that Sun American has more than tripled from a year ago,” says Lunde. “Good to see recognizable names with good trends and dynamism!”

What the industry should be aware of with the slight decrease in volume in February should be reminded of how early we are in 2021 and what trends are now emerging from lenders, Lunde says.

“This time of year is about getting off to a good start, and based on the growth from a year ago, the topic is firmly established,” he told RMD. “I wouldn’t worry too much about lower volume in a short month and just focus on moving forward as we near the end of Q1 (already!).”

HMBS edition

The $ 872 billion HMBS issuance came as issuers sought to close their existing LIBOR-indexed credit pipelines to new HMBS pools backed by LIBOR-based HECMs, based on a comment by New View Advisors based on public accessible GNMA data and the company’s own sources.

With the reverse mortgage industry in the process of moving back to the Constant Maturity Treasury (CMT) index while waiting for a more permanent LIBOR replacement, February continued with the revival of HMBS, which was hit 27th by CMT indexed loans Pools with a total of just under $ 418 million are covered, New View explained. No new CMT-supported initial investment pools were issued for several years prior to January 2021.

The LIBOR deadline was passed too late to attempt to pinpoint any trends that would emerge from its adoption, but February HMBS performance is encouraging, according to Michael McCully, partner at New View Advisors.

“We are pleased that the industry is moving – seemingly seamlessly [the] CMT [index]“Says McCully to RMD. “Leading indicators of the performance of CMT-based HMBS are encouraging.”

While the reverse mortgage market in general seems strong right now due to low interest rates and the additional availability of personal loans, it could be complicated by future economic conditions, New View noted in the comment on the HMBS data. This is supported by some recent occurrences, explains McCully.

“The recent rise in interest rates is a warning sign of future production,” he told RMD. “In addition, the appreciation of home prices (HPA) has been on the rise for years; A decrease in HPA could have a negative impact on issuance volume and possibly an increase in realized losses for issuers (and the FHA). “

Production of new, original loan pools rose to $ 693 million in February, up from $ 552 million in January, but still lower than the late 2020 records. There’s nothing to read on that, says McCully.

“The January production slump could be seasonal and / or operational as the industry shifts to CMT,” he told RMD.

Read the HECM Lenders in February report at RMI and the HMBS edition in February report at New View Advisors.

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