The reverse mortgage industry is pressing ahead with a chance at lower interest rates later this month. While there were signs of weakness in performance metrics in August, there are also commensurate signs of encouragement, according to industry experts.
Home Equity Conversion Mortgage (HECM) endorsements fell by 3.3% from July to August, with the total of 2,200 falling reasonably in line with Federal Housing Administration (FHA) HECM case numbers that posted their own gains in July. This is according to data compiled by Reverse Market Insight (RMI).
Meanwhile, HECM-backed Securities (HMBS) issuance increased by $44 million during the month for a total of $494 million in August. There were 77 pools issued, three fewer than in July. This is according to Ginnie Mae data and private sources compiled by New View Advisors.
HECM volume bumpiness
Last month, RMI President John Lunde referred to the monthly movements in HECM endorsements as a “yo-yo” that has traded off between gains and losses. That trend continued last month, with the 8% gain in July followed by a 3.3% reduction in August.
Despite that loss, however, July’s FHA HECM case number assignments — which often serve as a predictive factor for future endorsements — trended upward. The new borrower share jumped 14.5% to 2,840, HECM-to-HECM refinances increased 20.8% to 383 and purchases rose by more than 50% to 215 cases.
In terms of volume levels, however, only four of the top 10 lenders managed to post gains compared to July. Finance of America (FOA) saw 7.3% growth to 509 loans and maintained its industry leadership position. Guild Mortgage (10.2%), Mutual of Omaha Mortgage (4%) and Longbridge Financial (0.7%) also posted gains.
In terms of monthly totals, Mutual of Omaha outperformed industry leader FOA by eight loans (517 to 509, respectively). But on a year-to-date basis, FOA maintains a lead with 6,640 loans to Mutual of Omaha’s 6,203.
When asked what he made of the industrywide decline last month, Lunde explained that case numbers helped to predict it.
“The decrease overall was a predictable result of low case number issuance volume the past several months, with May and June particularly lagging,” Lunde told HousingWire’s Reverse Mortgage Daily (RMD). “Now that we’ve seen July case numbers bounce in response to lower expected rates, we can hope Q4 has better tidings for us on endorsement volumes.”
As the rate environment improves, and with the improvement in case number data in July, the yo-yo pattern is likely to continue, he added.
“We saw a 30 bps reduction in 10-year CMT from June 30 to July 31 and a bit of a boost in case numbers issued in July partly resulting from that,” he said. “Given the further 35 bps we’ve seen that key rate drop through Sept. 5, we’d hopefully see further volume gains.”
When asked whether it was possible that the industry is reacting preemptively to the possibility of a rate cut, Lunde didn’t quite see it that way.
“I think everyone is expecting rate cuts, but I’d say the reaction is more to the already occurring declines in the 10-year CMT rather than the anticipated drops in Fed Funds rate,” he said. “So, on that basis I’d say no, it’s not preemptive. Whether the 10-year CMT is itself reacting preemptively is always a fun discussion, though.”
Case numbers remain a key factor for the industry to watch, Lunde added.
“Case numbers grew significantly in July and saw an uptick in the HECM-to-HECM refi case numbers specifically,” he said. “If rates drop, that HECM-to-HECM case number column will certainly be one to watch.”
HMBS issuance tailwinds
The rise in HMBS issuance should put some “wind in the sails” of the reverse mortgage industry, according to the commentary accompanying New View Advisors’ issuance data.
While the firm described the increased issuance as something of a rebound, this news remains somewhat tempered by the reality that issuance at large remains near historic lows going back to 2010. It also follows historic issuance gains in 2021 and 2022.
FOA was once again the top HMBS issuer of the month with $166 million, a $27 million gain from July. Longbridge was next with issuance of $120 million (a $14 million increase), 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 Funding HMBS portfolio that is now under the control of Ginnie Mae, again issued no pools. That remains consistent with the activity of the portfolio since it was seized in late 2022.
When asked about what led to the increase in issuance this month, New View partner Michael McCully said that the increase itself was immaterial. But if rates fall, then issuance could rise further.
“August is just 4% over the 2024 $474 million HMBS issuance monthly average,” he said. “If the 10-year Treasury yield continues to fall, expect originations and HMBS issuance to increase.”
Indications from reverse mortgage lenders are that they are prepared to respond to a rate reduction if one occurs. Federal Reserve Chair Jerome Powell indicated recently that a cut to the federal funds rate at this month’s meeting of the Federal Open Market Committee (FOMC) is on the table, which could have the effect of driving mortgage rates lower.
