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The reverse mortgage industry could begin seeing some benefits of lower interest rates, but endorsement volume and securities issuance largely continued its trend from the prior month.
Home Equity Conversion Mortgage (HECM) endorsements fell by 2.1% from August to September, with 2,153 loans endorsed along with an increase in Federal Housing Administration (FHA) case number assignments issued. This is according to data compiled by Reverse Market Insight (RMI).
Meanwhile, HECM-backed Securities (HMBS) issuance was relatively flat, increasing by only $6 million during the month for a total of $500 million in September. There were 79 pools issued, two more than in August. This is according to Ginnie Mae data and private sourced compiled by New View Advisors.
Endorsement volume and case numbers
While volume took a modest hit in September, the recorded case number activity illustrated that the reverse mortgage market is starting to react positively to the improving rate environment, according to RMI. Case numbers increased by 7.1% to 3,683, which RMI notes is the highest level in a calendar year.
Equity takeout cases — or loans that are from first-time borrowers and not refinances — increased by 6.5% to 3,019. But HECM for Purchase cases saw a sharp decline of 19% to 175. Refinances rose sharply as well, up 25.7% to 489.
Interestingly, when looking at year-to-date endorsement figures, Mutual of Omaha Mortgage has overtaken Finance of America (FOA) as the largest lender in the country by a margin of 113 loans. The margin is small enough that this could change in a month, but it reflects the momentum that Mutual of Omaha has been seeing for some time.
When asked about the overall drop in endorsement figures for the month, Jon McCue — RMI’s director of client relations — said that the reduction seen in September was expected.
“The drop in endorsements was predictable if we look at June’s case numbers, which outside of January was the lowest number we had all year following another dip in May,” McCue said. “So, since funding and endorsements trail case numbers, I don’t think the drop was all that unexpected.
“If we now look at July and August case numbers — which have been steadily climbing — we should see relatively stronger endorsement numbers going into the end of this year, and most likely to start the new year off with.”
When asked about the drop in purchase amounts, McCue said that the data does not support such an observation.
“With the exception of June case numbers, and subsequently future endorsements from those case numbers, things have remained fairly level,” he said. “Some months have been slightly ‘better’ and some months slightly ‘worse,’ but no evidence of any loss of steam.”
McCue pointed to a dedicated session last week at the National Reverse Mortgage Lenders Association (NRMLA) Annual Meeting in San Diego. The event permitted standing room only, an indicator of broader interest in H4P, despite the relatively small sample size of loan originators who attended. But larger companies becoming more active in the reverse channel are also focused on reverse for purchase loans, he said.
“Some of these larger forward players are looking at ways to be more holistic in their approach to lending, which is now including a side-by-side comparison of a forward loan and reverse loan,” he said. “I would say the momentum is still there, but you are correct in that perhaps folks aren’t speaking about it like they did at the beginning of the year when the new changes came out.”
Ranking changes, looking ahead
When asked about Mutual of Omaha overtaking FOA in the year-to-date endorsement rankings, McCue said he can only speculate about the underlying cause. But FOA can differentiate itself through its proprietary product line, he explained.
“Since that data is not public, one could speculate that the drop in HECM might be being made up with HomeSafe, but again, without hard data, that is just an educated guess,” he said. “As for Mutual, one thing they do better is HECM for Purchase, and their limited focus on HECM-to-HECM refinances during the boom and their focus on core business including purchase helped them stay strong even in these challenging times.”
In terms of what industry professionals should focus on as the end of year gets closer, McCue said that mortgage rates should not be a primary concern since they’re out of the industry’s hands.
“They have no control over this, and there is a good chance there will be additional drops, but by how much and exactly when we don’t know,” he said. “I speak to a lot of LOs weekly, and for the most part the word on the street is they are seeing more interest, more applications and writing more loans again.
“Focus on these folks who are ready, learn from other top-tier LOs on how to overcome objections, and work your referral networks.”
HMBS issuance
Secondary market issuance saw a slight recovery in September, but it remains at historically low levels when it comes to the broader history of the Ginnie Mae program, according to New View Advisors. The promise of the forthcoming “HMBS 2.0” program remains a source of optimism since it “should increase HMBS issuance substantially by financing most mandatory buyouts” if it is implemented, New View said in its commentary.
The potential for HMBS 2.0 will be most felt by the industry’s longstanding issuers, according to Michael McCully, partner at New View Advisors.
“HMBS 2.0 will add the most volume to those issuers with the most seasoned portfolios and buyouts,” McCully said.
In early 2023, Ginnie Mae announced that it had reduced the required minimum size for all types of HMBS pools from $1 million to $250,000. In September, 20 pools had aggregate sizes below $1 million, which included “$12.8 million of [unpaid principal balance] that may not otherwise have been issued in September,” New View explained.
“[The policy] has marginally improved liquidity for those HMBS issuers using it,” McCully said.
When asked about the impact of an improving rate environment, McCully said that key metrics have remained flat.
“While short term rates have fallen, the 10-year Treasury yield has not moved much, and certainly not enough to meaningfully impact origination volume,” he said. “All else equal, until it does, expect HMBS issuance to remain flat.”
