Many in the reverse mortgage industry seem to agree with the basic message that the recent refinancing boom in business is generally good, especially if it helps borrowers, but the rise of the notorious borrower pie is what will ensure long-term success and the viability of the reverse mortgage product category.
While individuals in the industry have different views on whether a business will be able to adequately attract enough new borrowers in the future, many seem to share a consensus on what exactly increased refinancing means for the health of the business as a whole. and what the industry should do to respond to these realities when the imminent refinancing boom fades into the background.
RMD has conducted outreach across the reverse mortgage industry, from large lenders to smaller lenders, lenders, brokers and analysts, to share a collective perspective on the current state of the refinancing market and its implications for the future. industry for the rest of 2021 and beyond.
Strengths and Weaknesses of Reverse Mortgage Refinancing
One of the main lenders that, like many others, is facing a sharp increase in refinancing volumes is Reverse Mortgage Funding (RMF). The position here is pretty simple: borrowers need to be serviced, and if that means they are looking for a mortgage refinance refinance, then they will need a lender to help them with that.
“Like other companies in this area, refinancing activities play an important role in the overall operations of RMF,” says David Peskin, President of RMF. “Obviously, if borrowers can save on interest costs or generate additional revenue given the current cost of housing, it makes sense for them to refinance. This scenario is no different from the forward mortgage space. “
Other major lenders, including HighTechLending, have similar attitudes, according to President Don Curry. The component of business refinancing in the field of reverse mortgage is especially strong, especially because the borrowers served are already well acquainted with the specifics of the category of loans. However, according to Currie, it shouldn’t be the centerpiece of a reverse mortgage lender’s offerings.
“Moving from HECM to HECM is a great business because your customers are familiar with reversal and the learning curve is relatively vertical and the maturation period is much shorter,” he says. “However, this should not be your main business model for several reasons. Firstly, the circle of clients is limited, and many of us conduct targeted marketing for them, which makes this market very competitive. Ultimately, this will lead to a high cost of issuing closed-end loans ”.
Investors may not respond positively to refinancing pools every time, Curry said, as there are several specific elements in such loans that counteract them.
“Our investors don’t like just buying HECM-to-HECM pools because borrowers may be older and the loan term is shrinking, making it not as big as loans to younger borrowers,” he says. “If we only focus on old existing reverse borrowers, the returns paid by our investors will decline across the industry.”
Not necessarily a cause for concern
However, one national broker does not necessarily think that there is a general cause for concern among reverse mortgage professionals, as there are other components that can help make reverse mortgages an attractive option for new borrowers in the future. This was announced by Scott Harms, national manager of the C2 Reverse division of C2 Financial Corp.
“We are not necessarily aggressive about going and getting [refinance] business, but when there is a real benefit, we will deal with it together with the borrower, ”he says. “There is a huge advantage in attracting new borrowers to the market, and this is a significant increase [home values]… In 2018-2019, we saw property values double since 2008. Now, I think we have seen that they have grown by 150-200% from 2008-2009. “
This means that an older person who did not refinance cash after recovering from a market crash in the late 2000s – which may be a significant proportion of older people – will now have a reverse mortgage option available to them that may not have been available. for them in previous years.
“So this means that any senior employee who hasn’t paid cash out since, say, 2010, probably has enough capital to be eligible for a HECM or private reverse mortgage loan,” Harms says. “This means that we have access to many more new borrowers due to the increase in equity capital.”
What higher scores say about business and data trends
Trends in refinancing volume could be a silver lining in terms of potential lessons the industry can learn from business in the future, according to Patti Wills, national manager of retail reverse mortgage lending at Open Mortgage.
“We see the need to increase HECM penetration as a new opportunity to revisit some of the fundamentals of reverse mortgages, in addition to our internal customer service reviews and reporting on all reverse mortgages,” Wills tells RMD. “We look forward to working with HUD / FHA through the NRMLA and other means to make the HECM process less complex and more understandable to the general public. We will not be able to break into this market until we are constantly told that our product is too complicated. “
Reverse mortgage industry analysts have been sounding the alarm over the past few months about high refinancing rates – and potential existing loans that would be eligible for refinancing – which are a stagnant, non-renewable resource for the reverse mortgage industry as a whole. … However, according to recent data compiled by Reverse Market Insight (RMI) and provided by RMD, the trend of mortgage reverse refinancing has only intensified as the year wore on, with no signs of slowing down in the near future.
Throughout the year, the industry has been operating with a threshold of over 4,000 HECM loans per month in raw volume, which is a pretty good figure compared to previous years, especially after changes were made to the core limit factors in 2017. Federal Housing Administration (FHA).
However, as analysts recently noted and confirmed by RMI data provided by RMD, refinancing volumes have only increased and accounted for a large share of total reverse mortgages almost every month in 2021. The period from January to February is the only moment this year. at the same time, the volume of refinancing decreased from month to month, while the rate in January was 36.5% of the total, which exceeded the general indicator of February (35.3%), in the region of 1,500 loans.
Since March, the volume of refinancing has only grown and amounted to a large share of the total volume of HECM. The March refinancing rate is 39.7% of the total HECM. In April this figure rose to 41.3%, and in May – 44.3%. However, June is rather unexpected as the volume of refinancing amounted to 49% of the volume of HECM for the month, for a total of more than 2,000 loans out of 4,158 units per month.
While the industry and some of its stakeholders describe a renewed need to attract additional borrowers into the bosom of the industry, we will need to see how long the mortgage reverse refinancing rate can rise over the next few months. Like everything, time will tell.