When assessing December’s Home Equity Conversion Mortgage (HECM) volume data for December 2023, Reverse Market Insight (RMI) used a choice word as the title for its commentary: “thud.”
Amid an already challenging operating environment observed throughout 2023, both HECM endorsement volume and HECM-backed Securities (HMBS) issuance closed out the year on a low note, with both metrics falling lower from the month before, according to data from RMI and New View Advisors.
Endorsement volume falls slightly
While not a pronounced drop, HECM endorsements fell 3% to end the month with 2,190 loans, but that general drop came with a few notable exceptions according to RMI. Geographically, four of the ten tracked regions outperformed figures from the prior month, while four of the top 10 lenders also posted modest gains in the final month of the year.
One of the top 10 lenders that posted gains, however, was Open Mortgage. In its commentary, RMI speculated that this could be due to the company aiming to close out its pipeline of reverse mortgage loans in process following the announcement of the reverse mortgage division’s closure in November, as first reported by RMD.
All things considered, the drop observed last month was not a big surprise, according to Jon McCue, director of client relations at RMI.
“Honestly, the endorsement numbers for December were not all that surprising given the dip in case number assignments we saw in September and October,” he said. “The obvious culprit is still rates. Not only have [HECM-to-HECM] refinances more or less dried up, but it remains difficult to qualify new borrowers as well. When November and December case numbers are published, we’ll have a better idea of what to expect for Q1 2024. Beyond that will depend on what happens to rates.”
How industry consolidation could shape the business
Likely to have a big impact on industry performance metrics in 2024 is all the exits and consolidations we have observed throughout 2023: not only did Open Mortgage exit the business, but Finance of America Reverse (FAR) acquired former industry leader American Advisors Group (AAG), while Guild Mortgage acquired Cherry Creek Mortgage placing both companies in the top 10 in the final months of the year.
“Any time we see exits and consolidations we tend to see a dip in industry production for a time,” McCue said. “In the case of large institutions such as Bank of America, Wells Fargo, and MetLife, we never regained their lost volume. This is a different situation.”
For instance, the AAG brand still remains despite the FAR acquisition, but the exit of Open Mortgage and the ongoing ripples caused by Reverse Mortgage Funding (RMF)’s bankruptcy will likely impact the business more notably, he explained.
“It is the other players such as the production lost from RMF, what will be lost from Open, and even smaller companies who are moving on that we’ll feel for a short time until others move into the space again,” he said.
Securities issuance falls further
HMBS issuance in December totaled $457 million, a figure “substantially off” from the November total of $561 million, according to publicly available Ginnie Mae data and private sources compiled by New View Advisors. A total of 79 HMBS pools were issued in December, which — not including March 2023’s total — is the lowest HMBS issuance figure since 2014, the firm explained.
HMBS issuance in 2023 came out to $6.5 billion in total, less than half of the record-breaking figure of nearly $14 billion seen in 2022. But New View has been warning for virtually the entirety of 2023 that the year’s issuance levels would not come close to those record-breaking levels.
“December production reflects applications and originations from 2-3 months prior when the expected rate was at or near its highs,” said Michael McCully, partner at New View Advisors. “We don’t expect January to be much different.”
Despite what New View calls a substantial drop, the total issuance figure for the year was largely in line with what the firm had been expecting, he told RMD.
“[The figure is] in line with expectations,” McCully said. “HMBS issuance and HECM endorsements were both cut in half from 2022 to 2023.”
If the rate environment is kinder than what had been seen for much of last year, there are signs of encouragement, McCully said.
“Expect origination volume to increase if the 10-year treasury stays below 4% and home values remain stable,” McCully said. “The increased maximum claim amount [i.e. the HECM limit] for 2024 should help volume, too.”
New View also noted that 25 of the issued pools in December featured “aggregate pool size [of] less than $1 million,” according to its commentary. “Issuers are taking advantage of Ginnie Mae’s provision to issue pools as small as $250,000. This represents $15.6 million of [unpaid principal balance (UPB)] that may not otherwise have been issued in December.”
A Ginnie Mae policy issued in September 2023 allows for the securitization of multiple participations related to a particular HECM in any one issuance month, which could also help the program, New View said.