April 2021 in Data: Analysts see strength in reverse mortgage industry in current measures

Endorsements on home equity conversion mortgages (HECMs) fell in March, falling 0.8% to 4,187 loans. It’s yet another month with over 4,000 loans, marking a very slight reduction in volume from the last drop recorded earlier this year. HECM volume had previously trended downward in the final months of 2020 before December, according to data compiled by Reverse Market Insight (RMI).

In addition, the production of new HECM (Home Equity Conversion Mortgage) (HMBS) mortgage-backed securities recorded nearly $ 1.1 billion in HMBS issues in the second month of the era after ‘the era ”of the London Interbank Offered Rate (LIBOR). In total, 2020 saw $ 10.6 billion in total HMBS emissions, eclipsing a recent industry peak of $ 10.5 billion in emissions in 2017, according to publicly available data from Ginnie Mae and private sources. compiled by New View Advisors.

When contacted for comment, analysts looking at HMBS’s endorsement volume and issuance metrics report confidence in how reverse mortgage activity has grown in 2021, meaning a perception of the The industry’s continued strength as the country continues to recover from the economic and health crisis. caused by the COVID-19 coronavirus pandemic.

HECM endorsements, “ more optimistic than any year ” since 2017

Considering how reverse mortgage volume has performed in 2021 so far, now that we have cleared the fourth month of the year, this data could mean a sign of strength when looking at the performance of the company. since the last major disruption in the form of product changes passed on by the Federal Housing Administration (FHA) over three years ago. That’s according to John Lunde, president of RMI.

“At the bottom of page four [of RMI’s latest HECM Lenders report], we can see that the approval volume is 43.9% ahead of 2020 at this point in the year, ”says Lunde. “I would say the year-to-date volume performance is more optimistic than any year since the October 2017 product changes. [handed down by FHA]. “

However, the dramatic pause that took place during the April 2020 approval activity at the very onset of the COVID-19 pandemic could make the year-over-year comparison better than it is. is actually, Lunde adds.

Four of the top 10 reverse mortgage lenders were successful in increasing endorsement volume in April, with Liberty Reverse Mortgage increasing 18% to 314 loans leading the pack for major lenders. Open mortgages with an increase of 16.4% to 234 loans and Longbridge Financial with a jump of 14.3% to 208 loans are not too far behind in terms of overall growth. Mutual of Omaha Mortgage approved an additional 9 HECMs from figures last month, bringing its monthly total to 256 loans.

In terms of regional data, the Southwest saw a significant increase in endorsements with a peak of 53.6% to 341 loans for April, marking a “full recovery” after a significantly depressed volume in March. Seeing this kind of regional fluctuations without proportional volume changes at the national level is a bit unusual, but is also an interesting case, Lunde says.

“With a fairly small national change compared to last month, it’s somewhat surprising for regions to have much larger moves, but I’m never too excited up or down by changes in a months, ”says Lunde. “For the southwest, it still looks more negative than positive because the last two months on average are well below the previous trend. Diving into more detail with field offices on page 4, it seems Louisiana and Oklahoma are the culprits, and further than that, a sharp drop in active lenders suggests the industry has drawn resources from these. regions. “

Meanwhile, Texas has so far experienced a business boom in 2021, so it’s possible that attention is simply shifting, Lunde says.

In terms of further regional increases in endorsement volume, New York / New Jersey recorded a 16.1% increase to 187 loans, while the Great Plains region increased 13.4% to 76 loans.

HMBS broadcast: April “ very strong ”, but beware of refis

HMBS ‘April issue was “very strong” in April, totaling over $ 1 billion in this new era after which the LIBOR index cannot be applied to HECM variable rate reverse mortgages. As for how HMBS translates into a measure of industry health based on this data, these are very encouraging signs according to Michael McCully, partner at New View Advisors.

“We’re happy that the volume of record creation is happening after LIBOR,” McCully told RMD in an email. “The exact pricing and run levels of the CMT indexed HECMs were unknown [factor] until just a few months ago. As with other industry players, New View Advisors is pleased to see that investors are accepting CMT indexed HMBS and HREMIC. “

However, something that shouldn’t be overlooked in this equation is the environment in which the mortgage industry operates, regardless of the direction in which the mortgage operates for the borrower, McCully says.

“While the HECM program has been very stable, it is important to recognize that mortgage originators – term and vice versa – also continue to benefit from near perfect loan terms, historically low interest rates and value. ever-increasing homes, ”says McCully.

With the reverse mortgage industry now reverting to the Constant Maturity Treasury Index (CMT) as the only applicable metric for HECM floating rate loans, April continued with HMBS backed by CMT indexed loans. 104 pools were issued in April, including 47 first participation CMTs. No new CMT-backed first participation pool had been issued for several years prior to January 2021.

While business appears to be strong on the data front, it’s no secret that the favorable interest rate environment has led a plethora of lenders to engage in business focused on HECM refinancing transactions. -HECM. Examining hard data without keeping in mind the level of refi activity might paint an incomplete picture, says McCully, and industry participants should understand that much of the refi activity on newcomers. HECM can do for the metrics.

“All else being equal, current volume trends bode well for the future of our industry,” says McCully. “But we must remain vigilant against the churning / refinancing of the newly created HECMs. Excessive refinancing hurts investors and distorts the true new original volume figures. “

Read April HECM Lenders report on RMI and the April HMBS show report at New View Advisors.

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