The number of approved home mortgages (HECM) fell 4.4% in June to 4,160 loans. Although the unprocessed volume is lower this month, it accounts for another month with more than 4,000 loans, bringing the monthly series of volumes above this threshold by up to seven months. This is according to data compiled by Reverse Market Insight (RMI).
In addition, the issuance of new securities backed by a convertible equity mortgage (HECM) (HMBS) posted a HMBS issue of just over $ 1 billion in the fourth month of the period following the London Interbank Offer Rate (LIBOR) era. Overall, HMBS had a total issuance of $ 10.6 billion in 2020, surpassing the recent industry high of $ 10.5 billion in 2017, according to public figures from Jeannie Mae and private sources compiled by New View Advisors.
Both metrics continue to show solid flows of overall industry health, even with a modest decline in approvals over the month, but overall industry gains from refinancing volumes remain a challenge to growth in the reverse mortgage sector.
Approval volume: Regions with low sales grow, large lenders mostly fall
Of all the national regions that RMI tracked when calculating approval data, only three regions recorded gains in June, and all were mostly localized in lower-volume regions of the country. The Great Plains region rose 22.7% to 54 loans, followed by New England with 15.5% growth to 97 loans. The growth regions were completed by the Rocky Mountain region, which recorded an increase of 9.3% to 495 loans.
RMI President John Lunde said part of the reason that growth is limited to these regions may be due to the observed overall HECM-to-HECM (H2H) refinancing activity.
“Given the dominance of H2H refinancing activity that we are seeing, it seems to me that the industry may be testing the limits of loans available for refinancing in some of the historically higher volumes,” he told RMD. “So, [the industry is] now I’m looking at other parts of the country. “
Only three of the top 10 reverse mortgage lenders were able to post a rise in approvals this month, and the same number of major lenders posted growth in May. Only one lender that surged last month – HighTechLending – returned to announcing earnings this month with a 10.5% rise to 95 credits.
Mutual of Omaha Mortgage was the leader in earnings from major lenders, which grew by an impressive 43.1% to 332 loans, the highest volume since the PLF change in October 2017 by the Federal Housing Authority ( FHA). The leader of growth this month was Longbridge Financial, which jumped 9.4% to 163 loans.
While volume is still high, given that this is another month with over 4,000 loans, Lunde said it could still be cause for potential concern in terms of data dynamics, Lunde said.
“I look at recent months as high enough not to cause concern, but rather as the beginning of fears that volume may start to decline more significantly,” Lunde told RMD. “We’ve seen some decline in earlier metrics such as filed cases and filings, so we just need to see if this continues.”
The level of volume seen by large lenders – and for the second straight month most of them fail to show volume gains – may be an additional indicator, Lunde says.
“Top 10 lenders and regions with large volumes are the leaders,” he explains. “The lack of strength is the reason that the industry as a whole is not showing growth at the moment.”
Another sign is the recent re-emergence of a series of volumes in excess of 4,000 units, which has not been seen since the previous disruptive changes in the industry were made, he says.
“Our last such strip [of over 4,000 loans per month] ended in March 2018 as the changes made to the PLF in 2017 took effect, ”says Lunde. “So we’re really testing the levels we saw before the last major change / tightening of the FHA product over 3 years ago.”
HMBS release: refi ‘burnout’ may be on its way
New View Advisors partner Michael McCully said the production of initial new loan pools in 2021 is showing a clear positive trend over previous years.
“For pools of new releases, each month in 2021 is ahead of the same month in previous years,” McCulley told RMD. “June production of new issue pools was approximately $ 600 million in 2017, 2018, 2019 and 2020. In 2021, it amounted to $ 823 million. For total release, the second quarter of 2021 was a quarterly record with $ 3.16 billion issued by HMBS. “
The data suggests that the current refinancing boom may start to recede, McCully says, due to the observed rate activity. This is also due to the fact that the industry needs to keep in mind that business will continue to move in a positive direction if refrigeration volume declines.
“Interest rates for new manufacturing HECMs are at or near the minimum expected rate, so refinancing burnout should begin, ceteris paribus,” McCulley tells RMD. “The industry will need to keep a close eye on the quality of the valuation as the impact of lower rates, bringing net tangible benefits to borrowers, is diminishing.”
Manufacturing for the new original pools is still generally good, McCully said.
“In general, the volume of new issues remains high. Moderate volume fluctuations are expected from month to month, ”he says.
However, he reiterated that the quality of the assessment should remain a priority for the industry. The FHA recently authorized the recently approved external assessment provisions expire in light of the widespread availability of COVID-19 coronavirus vaccinations, as well as internal government data indicating that appraisers are less and less using the option for external mortgage only.
Appraisers hired by RMD generally praised the move as a step that could improve the quality of the appraisal, since only external examination naturally does not take into account important attributes of the property in the appraisal process.