The reverse mortgage industry could start to see some benefits from lower interest rates, but approval volume and securities issuance largely continue the trend from the previous month.
Approvals for the Home Equity Conversion Mortgage (HECM) fell 2.1% from August to September, with 2,153 loans approved, along with a rise in mortgage interest deductions. Federal Housing Administration (FHA) case number assignments issued. This is according to data composed by Reverse market insight (RMI).
Meanwhile, issuance of HECM-backed securities (HMBS) was relatively flat, increasing by just $6 million over the month, reaching a total of $500 million in September. 79 pools have been issued, two more than in August. This is according to Ginny Mae data and private sources compiled by New viewing advisors.
Approval volume and case numbers
Although volume took a modest hit in September, the recorded activity in the number of cases illustrated that the reverse mortgage market is beginning to respond positively to the improving interest rate environment, RMI said. The number of cases rose by 7.1% to 3,683, which is the highest level in a calendar year, according to the RMI.
The number of share takeovers – or loans that come from new borrowers and not from refinancings – rose 6.5% to 3,019. But HECM for Purchasing saw a sharp decline of 19% to 175. Refinancings also rose sharply, by 25.7% to 489.
Interestingly, when we look at the year-to-date approval figures, Mutuality of Omaha Mortgage has overtaken Finance of America (FOA) as the country’s largest lender with a margin of 113 loans. The margin is so small that this could change within a month, but it reflects the momentum that Mutual of Omaha has been seeing for a while.
When asked about the overall decline in approvals for the month, Jon McCue – RMI’s director of customer relations – said the decline was expected in September.
“The drop in endorsements was predictable when we look at case numbers in June, which was the lowest we had all year outside of January, after another dip in May,” McCue said. “So given that funding and endorsements follow case numbers, I don’t think the drop was that unexpected.
“Now, looking at the case numbers in July and August – which have been steadily rising – we should see relatively stronger support numbers towards the end of this year, and most likely to start the new year.”
When asked about the decline in purchase amounts, McCue said the data does not support such an observation.
“With the exception of the case numbers in June and subsequent future confirmations of those case numbers, things have remained fairly consistent,” he said. “Some months were slightly ‘better’ and some months were slightly ‘worse’, but there is no evidence of any loss of strength.”
McCue pointed out a special session last week at the National Association of Reverse Mortgage Lenders (NRMLA) Annual Meeting in San Diego. The event was standing room only, indicative of broader interest in H4P, despite the relatively small sample size of lenders in attendance. But larger companies that are becoming more active in the reverse channel are also focusing on reverse purchase loans, he said.
“Some of these larger players are looking for ways to be more holistic in their approach to lending, which now includes a side-by-side comparison of a term loan and a reverse loan,” he said. “I would say the momentum is still there, but you’re right in saying that people may not be talking about it like they did at the beginning of the year when the new changes came out.”
Ranking changes, looking ahead
When asked if Mutual of Omaha has overtaken FOA in the year-to-date rankings, McCue said he can only speculate on the underlying cause. But FOA can differentiate itself through its own product line, he explained.
“Since that data isn’t public, you might speculate that the drop in HECM may be offset by HomeSafe, but again, without hard data that’s just an educated guess,” he said. “As for Mutual, one thing they are doing better is HECM for purchasing, and their narrow focus on HECM-to-HECM refinancings during the boom and their focus on core activities including purchasing helped them stay strong even in this challenging times.”
In terms of what industry professionals should focus on as the end of the year approaches, McCue said mortgage rates should not be the main concern because they are out of the industry’s hands.
“They have no control over this and there is a good chance that there will be further declines, but how much and when exactly we don’t know,” he said. “I speak to many LOs every week, and the majority of the word on the street is that they are seeing more interest, more applications and more loans being written again.
“Focus on these people who are ready, learn from other leading LOs on how to overcome objections, and work on your referral networks.”
HMBS issuance
Secondary market issuance rebounded slightly in September, but remains at historically low levels when looking at the broader history of the Ginnie Mae program, according to New View Advisors. The promise of the upcoming “HMBS 2.0” program remains a source of optimism as it “should substantially increase HMBS issuance by financing most mandatory buyouts” if implemented, New View said in its commentary.
According to Michael McCully, partner at New View Advisors, the potential of HMBS 2.0 will be felt most by the industry’s established issuers.
“HMBS 2.0 will add the most volume to the issuers with the most experienced portfolios and buyouts,” McCully said.
In early 2023, Ginnie Mae announced that it had reduced the minimum size requirement for all types of HMBS pools from $1 million to $250,000. In September, 20 pools had a total size of less than $1 million, including “$12.8 million of [unpaid principal balance] which might otherwise not have been issued in September,” New View explains.
“[The policy] has marginally improved liquidity for the HMBS issuers who use it,” McCully said.
When asked about the impact of an improving interest rate environment, McCully said key metrics have remained stable.
“While short-term interest rates have fallen, 10-year Treasury yields have not changed much, and certainly not enough to meaningfully impact production volumes,” he said. “Until this happens, expect HMBS issuance to remain flat.”
