Reverse mortgage industry activity has been on something of an upswing since early 2020, when the economic turmoil of the COVID-19 coronavirus pandemic led more seniors to consider new options to create cash flow. However, more recent reverse mortgage activity has shown a more significant spike, and looking at how the data breaks down between the first quarters of 2021 and 2022, respectively, helps illustrate the jump even further.
According to new quarterly industry data shared by Reverse Market Insight (RMI), Home Equity Conversion Mortgage (HECM) endorsement volume rose 73.96% in Q1 2022 when compared to the same period the prior year. Compared to just under 13,000 loans originated in Q1 2021, that figure rose to well over 17,000 loans this year.
To get a better idea of how the data paints a picture of reverse mortgage industry health, RMD sat down with Jon McCue, director of client relations at RMI.
The stark difference in quarterly reverse mortgage data
While the performance figures for Q1 in 2021 and 2022 are likely to elicit strong responses from the wider reverse mortgage industry, seeing such a stark difference play out in the numbers was also surprising for RMI, McCue says.
“One of the things that really jumped out was the overall comparison from Q1 of 2021,” he says. “ We had an overall increase of 4,592 in endorsements which was a 73.6% overall increase. When you’re just looking at single months like we usually do, we sometimes forget to look at the overall picture.”
Another thing that helps to further contextualize this data in comparison to current industry performance is in seeing how the pace of 2021 by the end of its Q1 compares with the industry’s pace today, he says.
“To put this in perspective to last year’s volume numbers, we have already hit 33% of the volume from last year in just the first quarter of this year,” McCue says. “If we are able to keep up this pace, we would demolish what was already considered to have been a stellar year in 2021.”
Another thing this breakout helps to visualize is the performance levels of both the retail and wholesale channels of the business. On the wholesale side, Q1 business in 2022 gained 1,483 endorsements over the same period in 2021. On the retail side, the difference between the two is larger at 3,110 more loans this year when compared to last year.
However, the big industry trend over the past year plays a lot into these figures, McCue says.
Refi volume and the continuing ‘boom’
A great deal of the difference between the two Q1 years on the retail side falls into HECM-to-HECM (H2H) refinance transactions, he explains. Not every lender — even within the top 10 producers — falls into this category, however.
“With H2H making up so much of the volume, and lenders having the ‘lion’s share’ of active clients it isn’t a surprise that much of the volume from the top lenders came via H2H refi,” McCue says. “There are two notable exceptions here when it comes to the top 10, and that is both Mutual of Omaha and Fairway Independent Mortgage. They both certainly had H2H refinances, but a much smaller percentage compared to their overall volume than the rest, and this is due in part to their commitment to [HECM for Purchase (H4P)].”
Refinances are still making up a large share of industry activity. Data from February 2022 indicates that refi volume remained above 50% in the industry for that month, and composed 45.9% of all HECM loans in 2021, rising to 50.8% of all loans in the fourth quarter of that year. In Q4 2020, HECM refis made up 35.6% of all endorsements, and in FY 2020 they made up roughly 25% of endorsements based on data found in FHA’s Annual Report to Congress.
Still, the moves being made by major lenders into H4P emphasize to McCue that the challenges posed by moving beyond the low-hanging refi fruit are not insurmountable, he says.
“When many others are finding it challenging to enter this space, or have great success with it, both of these companies have taken it head-on as a major part of their growth strategies,” he says.
Outside of the spike observed in February of this year, H2H refis had begun trending downward. However, it’s likely that not enough time has passed in this year to see if that downward trajectory in January and March is indicative of a trend, especially with an observable February spike, McCue says.
“It is still probably too early to fully commit to this statement, but we have been seeing H2H volume continue to slightly dip for the past couple of months, and this was prior to the recent rise in the 10-year CMT,” he explains. “With that said, it will certainly be more challenging to drive 48% – 50% of our business as H2H. Also with rates rising on the forward side, we are already beginning to see some cooling on home prices in certain markets, so if home prices cool too rapidly then that too will impact H2H.”
Refis have also impacted the prices of HECM-backed Securities (HMBS), he says, which could create another headwind for a continued high pace of H2H production.
“We’re expecting to see refi share of endorsements decline,” McCue says. “It’s just a question of how much.”
March business spike
The data also includes March 2022’s historic spike in reverse mortgage volume to levels not seen in the industry since March of 2011, well over a decade ago. When asked if this spike could indicate a new focus on the part of lenders trying to seek out new borrowers, McCue takes a more holistic approach.
“I think it was a combination of things,” he says. “One is the obvious detail, which is that February has the fewest number of business days to both fund and endorse loans, so those that could not get endorsed due to the time constraint would obviously be pushed to March. Secondly, everyone knew rates were rising including borrowers, so folks were pushing to fund loans while the rates were lower.”
In March, refinance volume dipped very slightly to 48.9% of all industry loans during the month. The retail segment still led the way regarding raw volumes, but the wholesale segment experienced a higher level of growth in March, rising 28% to 2,765 loans compared to February’s data according to RMI’s HECM Originators report.