The yo-yo ride for reverse mortgage volume continued in August
The reverse mortgage industry is pushing ahead with a chance of lower interest rates later this month. While there were signs of weakness in performance metrics in August, there are also corresponding signs of encouragement, according to industry experts.
Home Equity Conversion Mortgage (HECM) endorsements fell 3.3% from July to August, with the total of 2,200 fairly in line with Federal Housing Administration (FHA) HECM case numbers that posted their own gains in July. This is according to data composed by Reverse market insight (RMI).
Meanwhile, HECM-backed securities (HMBS) increased by $44 million during the month, reaching a total of $494 million in August. 77 pools have been issued, three fewer than in July. This is according to Ginny Mae data and private sources collected Through New viewing advisors.
HECM volume bumpiness
Last month, RMI President John Lunde referred to the monthly movements in HECM recommendations as a “yo-yo” that has alternated between gains and losses. That trend continued last month, with the 8% increase in July followed by a 3.3% decline in August.
Despite that loss, FHA HECM case number assignments in July – which often serve as a predictive factor for future approvals – trended upward. The share of new borrowers rose 14.5% to 2,840, HECM-to-HECM refinancings rose 20.8% to 383 and purchases rose more than 50% to 215 cases.
However, in terms of volume levels, only four of the top ten lenders managed to post gains compared to July. Finance of America (FOA) saw growth of 7.3% to 509 loans and maintained its leading position in the sector. Guild Mortgage (10.2%), Mutuality of Omaha Mortgage (4%) and Longbridge financial (0.7%) also made gains.
In terms of monthly totals, Mutual of Omaha outperformed market leader FOA by eight loans (517 to 509, respectively). But on an annual basis, FOA maintains an edge with 6,640 loans to Mutual of Omaha’s 6,203.
When asked what he thought of the industry-wide decline last month, Lunde explained that case numbers helped predict it.
“The overall decline was a predictable consequence of the low issuance volume in recent months, with May and June in particular lagging behind,” Lunde said. HousingWire‘s Reverse Mortgage Daily (RMD). “Having seen case numbers rise in July in response to lower expected numbers, we can hope that the fourth quarter will bring better news for us on approval volumes.”
As the climate improves, and with the improving data on case numbers in July, the yo-yo pattern is likely to continue, he added.
“We saw a 30 basis point reduction in the 10-year CMT from June 30 to July 31 and a slight increase in the number of cases issued in July, partly as a result,” he said. “Given the further decline in policy rates by 35 basis points through September 5, we would hopefully see further volume increases.”
When asked whether it was possible for the sector to react preventively to the possibility of an interest rate cut, Lunde did not quite see it that way.
“I think everyone is expecting rate cuts, but I think the reaction is more likely to be a reaction to the declines already occurring in the 10-year CMT than to the expected declines in the fed funds rate,” he said. “So based on that I would say no, it’s not preventative. However, whether the 10-year-old CMT itself responds preventively is always a fun discussion.”
Case numbers remain a key factor for the industry to watch, Lunde added.
“The number of cases grew significantly in July and there was a particular increase in the number of HECM-to-HECM refi cases,” he said. “If rates drop, that HECM-to-HECM case number column will definitely be something to keep an eye on.”
HMBS issuance has tailwinds
The increase in HMBS issuance should put some “wind in the sails” of the reverse mortgage industry, according to New View Advisors issuance data commentary.
While the company described the increased emissions as a recovery of sorts, this news is somewhat tempered by the reality that emissions overall are still at historic lows dating back to 2010. This also follows historic increases in emissions in 2021 and 2022.
FOA was again the largest HMBS issuer of the month with $166 million, a gain of $27 million from July. Longbridge was next with a $120 million issue (up from $14 million), followed by PHH Mortgage Corp./Liberty Reverse Mortgage with $80 million and Mutual of Omaha with $73 million.
‘Issuer 42’, the designation given to the former Reverse Mortgage Financing The HMBS portfolio now under the control of Ginnie Mae again issued no pools. This remains consistent with the portfolio’s activity since it was seized in late 2022.
When asked what led to the increase in issuance this month, New View partner Michael McCully said the increase itself was immaterial. But if interest rates fall, issuance could rise further.
“August is just 4% above the monthly average of HMBS issuance of $474 million in 2024,” he said. “If 10-year Treasury yields continue to fall, you can expect HMBS production and issuance to increase.”
Indications from reverse mortgage lenders are that they are prepared to respond to a rate cut if one occurs. Federal Reserve Chairman Jerome Powell recently indicated at this month’s meeting that there is a reduction in the Federal Funds Rate Federal Open Market Committee (FOMC) is on the table, which could result in mortgage rates falling.
