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Reverse mortgage volume drops in August

HECM endorsements fell in August by 14.3% to 3,679 loans

The reverse mortgage volume boom appears to have diminished for now, at least if new data is any indication.

Home Equity Conversion Mortgage (HECM) endorsements fell in August, 2021 by 14.3% to 3,679 loans, with July now having marked the end of a streak of monthly volume above a threshold of at least 4,000 units that has been observed since late 2020. This is according to data compiled by Reverse Market Insight (RMI).

However, the production of new HECM-backed securities (HMBS) recorded just under $1.1 billion in HMBS issuance in the sixth month of the period after the London Interbank Offered Rate (LIBOR) “era.” All told, 2020 saw $10.6 billion in total HMBS issuance, eclipsing a recent industry high of $10.5 billion of issuance in 2017 according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.

The industry’s general bolstering on the volume side by refinance volume remains a concern for the growth of the reverse mortgage business sector according to analysts who spoke with RMD, with one describing the share of refinance volume in August as reaching over 50% of HECM endorsements for the first time.

A sharp drop in reverse mortgage volume

Considering where reverse mortgage volume has been since November of 2020, seeing a drop of this size rather abruptly is enough to cause a degree of concern for the analysts at RMI, according to the commentary accompanying its latest data release.


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“The drop is a bit concerning given the industry had been above 4,000 loans for 8 consecutive months, but it remains to be seen if this will be a momentary endorsement blip,” RMI said in the commentary.

That thought was also shared with RMD by RMI President John Lunde, who described that while the industry should pay attention to the data, it was too soon to tell if this was the onset of some kind of overall volume trend.

“This is where I’m always hesitant to read too much into a single month’s number,” Lunde told RMD. “September endorsements should tell us if this is a trend or just a blip.”

In terms of regional performance data, the Great Plains region was a standout for the month of August as it saw a 20.5% gain in reverse mortgage volume to 53 loans, an outlier in a month that saw every other major tracked region’s volume decline in concert with the rest of the industry. The regions which fell the least include the Rocky Mountain region falling 6.9% to 500 loans and the New England region falling 8.6% to 85 loans.

“[The Great Plains’ numbers] seem like more of a timing difference to other regions, as it had a relatively poor July total,” Lunde said of the regional data.

In terms of the major lenders for the month, three of the top 10 recorded volume increases when compared with their July totals. The leaders in volume gains were Mutual of Omaha Mortgage (rising 45.6% to 316 loans), Longbridge Financial (gaining 34.2% to 157 loans) and Fairway Independent Mortgage Corp. (rising 15.7% to 118 loans).

For Mutual of Omaha, their August is most definitely stronger than totals last month and appears to be led by volume beyond refinances, Lunde said.

“It’s a strong recovery from a poor July, but [Mutual of Omaha] has been consistently below the industry refi share, so I’d expect that wasn’t the cause of August’s strength,” he explained.

Regardless of the lower volume figures, Lunde remains optimistic regarding the prospects of the industry through the end of the year.

“I do think the industry is well-positioned to push ahead with new borrower outreach and shift attention to that front when refis wane, although there are inevitable lumps in the adjustment phase,” he said.

HMBS issuance continues to hold strong

HMBS issuance for the month of August looks “strikingly similar” to the data posted from the prior month, according to New View Advisors. In spite of the reduction in HECM endorsement volume, HMBS issuance’s position as an indicator of overall industry health should not be understated according to Michael McCully, partner at New View Advisors.

“While August showed a decline in endorsement count, August HMBS dollar issuance — a more accurate predictor of origination volume — remained robust,” McCully told RMD. “It is too soon to tell if refi burnout has begun.”

As also appeared to be the case one month ago, the reverse mortgage industry could be headed for a record year on the HMBS issuance front, McCully explained.

“All else equal, the industry is on track to surpass its previous HMBS annual dollar volume record,” McCully said.

One month ago, McCully cited the source of his reasoning for RMD: the last time records were broken and the very different state of affairs that defined the industry in terms of its regulatory reality.

That’s not to say that the industry should toss aside any vigilance and rely solely on a single metric to develop a perspective on overall industry health, however. Reduced origination volume — particularly in the sense that over 50% of endorsements were made up by refinances in August, according to New View — could have a wider impact on the industry outside of simply refi “burnout” depressing volume, McCully said. That allows the industry to aim for a particular target when it comes to the development of 2022 business.

“Continued high rates of refinance, even as net tangible benefit to borrowers recedes, could leave seniors vulnerable to misleading advertising, inflated appraisals, and other forms of coercion,” McCully told RMD. “2022 should be the year to focus on organic growth. Rates are not likely to go lower, and home values are plateauing, leaving little room for legitimate refinance volume to continue.”

In the roughly $1.1 billion of new issuance recorded in August, 107 pools were issued including 42 first-participation CMT pools, which is very similar to the prior month’s data as noted by New View. Prior to the beginning of 2021, no new CMT pools had been issued in several years due to the transition to the LIBOR index.

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