Home Equity Conversion Mortgage (HECM) endorsements in January saw a very strong increase at the start of the year, up 10.8% to 4,539 loans. This makes the January 2021 volume the highest the industry has seen since May 2020, marking a explosive volume increased to over 5,000 loans. January also marks a continuous rise that began in December 2020, as HECM’s volume had previously trended downward during the final months of 2020 according to data compiled by Reverse Market Insight (RMI).
In addition, the production of new Home Equity Conversion Mortgage Backed Securities (HECMs) (HMBS) recorded $ 949 million in HMBS issues as issuers begin to withdraw LIBOR-indexed loans from their pipelines. In total, 2020 saw $ 10.6 billion in total HMBS emissions, eclipsing a recent industry peak of $ 10.5 billion in emissions in 2017, according to publicly available Ginnie Mae data and private sources. compiled by New View Advisors.
HECM approval volume
If the figure recorded in January is not as high as the more than 5,000 loans observed last May, the highest figure since then was to turn some heads, including the chairman of the RMI, John Lunde.
“I agree, it’s a bit of a surprise, but it highlights that the fourth quarter  the funding was stronger than the endorsements indicated, ”he told RMD in an email. While it is possible that some of the additional volume activity is related to the impending LIBOR pullback for HECM loans, this is probably more clearly visible in the HMBS data.
Eight of the 10 regions tracked by RMI also saw their approval volumes increase, with MId-Atlantic increasing 40% from a relative decline seen in December, followed by Northwest / Alaska surging more than 30% and the Midwest region gaining nearly 20% on December figures.
“Regional trends are of interest to me as we don’t yet know how much of each region’s strength is driven by HECM for Purchase (H4P) versus refi versus traditional volume,” says Lunde. “All of these benefit from higher house prices, which can benefit from low inventory, but this first shot is really just that with the regions and subways of the country in mind. With more granular data in our HECM Originators and Trends reports, we will have a clearer picture. And, of course, our paying customers have access to all of these details in our Retail Dashboard.
As for whether this bodes well for the rest of the year, it’s always better to start at the top rather than the other way around, but the industry shouldn’t be stepping forward either, says Lunde. .
“It’s always better to start January on a high note and it bodes well for the year to come, but we also wouldn’t want to stray too far from our skis to predict the rest of the year” , he explains. “We still believe the industry has a strong underlying growth trend driven by consumer needs and product / market fit, which has only been strengthened by the pandemic conditions we are experiencing.”
Lenders inside and outside the top 10 have seen their volumes increase, especially when they’ve watched the trends over the past few months, he says.
“Note that lenders are seeing growth spurts over several months in this report given the lumpiness of endorsements in general,” he says. “Longbridge is a good example here, where they post their highest volume ever on this report following consecutive months of growth. “
Ultimately, the reverse mortgage industry needs to stay focused on its core strengths in an attempt to maintain momentum longer into 2021, including maintaining many strengths and paying attention to some perennial weaknesses in terms of product awareness, advises Lunde.
“I feel like the industry is currently benefiting from a favorable wind with low interest rates, rising house prices and volatile financial markets,” he says. “The best way to capitalize is to continue to look ahead for future growth investments in education, relationships, technology and product development, even while capturing higher volume in the present moment. “
That’s not to dismiss the Herculean task that may be for some, but for anyone who’s stuck in the industry for the past decade or so, seeing levels like this should be encouraging, he says.
“A wise man once told me that it was like changing the tire on a car at 100 mph and he wasn’t wrong, but that’s the nature of the beast,” he says. “And after the proverbial decade of leaner times for the industry, this is a welcome change for those who have persevered.”
HMBS’s total issuance of $ 949 billion occurred as issuers continue to close their existing pipelines of LIBOR-indexed loans, and January 2021 is the penultimate month that the Government National Mortgage Association (GNMA , or “Ginnie Mae”) will allow the pooling of new HMBS pools backed by LIBOR-based HECMs, according to a comment from New View Advisors based on publicly available GNMA data and the company’s own sources.
While the HECM approval data is encouraging, it needs to be properly understood in the context of something like HMBS issuance data according to Michael McCully, partner at New View Advisors.
“The approval data does not reflect current capital market activity,” he told RMD in an email. “Rather, it should be used as a retrospective measure, preferably over long periods of time.”
As the reverse mortgage industry reverts to the Treasury Constant Maturity (CMT) index pending a more permanent replacement to LIBOR, January saw the emergence of HMBS backed by CMT indexed loans, with 19 pools totaling just under $ 300 million. . No new CMT-backed first participation pool has been issued for several years according to New View, but given recent events, their appearance here was not exactly a surprise.
“We expected to see a mix of LIBOR and CMT HMBS in January,” McCully told RMD. “Expect to see a mix in February too. “
January’s total emissions were lower than the figures recorded in December, but are still at the same level as levels seen a year ago and have possible attribution factors, McCully said. The nature of the numbers also makes it difficult to forecast later in the year.
“While the January 2021 production was lower than in the fourth quarter of 2020, it is almost identical to [issuance figures recorded in] January 2020, ”says McCully. “This could be explained by seasonality, or a reversion to the mean. […] 2021 cannot be assessed on the basis of one month of production.