Reverse mortgage industry performance metrics have been trading gains and losses for several months now, but a more favorable interest rate environment and optimism about the possible trajectory of business in 2025 have arrived alongside some generally positive news for October.
Home Equity Conversion Mortgage (HECM) endorsements increased by 11.1% from September to October, with 2,392 loans endorsed last month, according to data compiled by Reverse Market Insight (RMI).
Meanwhile, HECM-backed Securities (HMBS) issuance posted its largest figure since September 2023, increasing by $98 million during the month for a total of $598 million in October. There were 78 pools issued, one fewer than in September. This is according to Ginnie Mae data and private sources compiled by New View Advisors.
Endorsement volume
When asked about the primary source for the spike, Jon McCue — RMI’s director of client relations — pointed to a previously predicted rise in Federal Housing Administration (FHA) case number assignments.
“As always, we turn to case number assignments to answer this question,” he said. “We predicted a rise in endorsements given the sharp comeback in case numbers shown between June to July, and with another increase in August, we should most likely see another increase next month if this holds true.”
Geographically, volume gains took place across the 10 tracked regions. But the gains were not as pronounced as they might have been if all else were equal, McCue explained.
“Given that all the regions were up, as you’d expect with a nice increase month over month in endorsements, [geographic activity is] not [telling us] much,” he said. “There is one exception to this rule, though, and that is the Southeast/Caribbean region was the only region that was down on the month.
“The only big difference there came from the hurricanes, so you would have to suspect that those storms had a major impact on volumes, but otherwise we saw fairly strong gains across the board.”
Once again in October, Mutual of Omaha Mortgage outperformed Finance of America, with the former overtaking the latter atop the rankings for year-to-date totals. When asked whether this is a sign that Mutual of Omaha is overtaking FOA, McCue said he wasn’t totally sure.
“These are both strong companies that have their own strengths,” he said. “It is tough to say that one is taking over another for a top spot with the numbers so close. It is looking like a neck-and-neck race going into the finish line of 2024, though. I would say that we as an industry are lucky to have two strong companies like this leading the way for others, and hopefully their momentum continues into and through 2025.”
Many analysts are predicting that the Federal Reserve will move to modestly cut rates again on Thursday. When asked if this could have a beneficial impact on the reverse industry, McCue pointed to rates rising again after the previous Fed rate cut. A bigger impact could come from another major event taking place this week.
“It didn’t have the impact that so many people thought it would,” McCue said of the rate cut. “However, one thing that is potentially bigger for rates is what happens in the election. That may have more of an impact than any rate cuts by the Fed. It truly is a waiting game, and election years are always interesting.”
HMBS issuance
HMBS issuance saw a larger bounce in October when compared to other recent months, but that has not changed the overall calculus. Issuance is still at historically low levels, and the final tally for 2024 is likely to be significantly lower compared to the past few years.
“HMBS issuance set a record in 2022, with nearly $14 billion issued,” New View said in its commentary accompanying the data. “Total issuance for 2023 was approximately $6.5 billion. 2024 total issuance through October totals $4.9 billion — $579 million lower than at this time last year and $7.6 billion lower than at this time in 2022.”
But in terms of what has moved the proverbial needle, Mutual of Omaha’s total issuance jumped strikingly — from $75 million in September to $161 million in October.
The biggest issuers for the month remained relatively stable. FOA stayed in the top spot with $170 million (versus $151 million in September), followed by Mutual of Omaha, Longbridge Financial ($126 million, up from $105 million) and PHH Mortgage Corp. ($88 million, down from $108 million).
“Issuer 42,” the designation given to the former portfolio held by Reverse Mortgage Funding (RMF), again issued no pools.
Not only did last month’s gain push Mutual of Omaha to No. 1 in the year-to-date-totals, but its additional activity was given as a key reason for the industry’s overall monthly gain.
“The uptick in October HMBS issuance volume is primarily attributed to Mutual of Omaha’s $88 million in tail pool issuance,” said Michael McCully, partner at New View Advisors.
Tails are not from new loans, New View said, but do represent new amounts lent and consistent of “subsequent participations.” But overall, tail issuance is “burning out,” McCully said.
“Average monthly tail issuance in 2017 was $235 million; 2024 year to date is $174 million,” he said.
One potential spot to keep an eye on remains Ginnie Mae’s planned HMBS 2.0 program.
“If HMBS 2.0 is implemented, expect 2025 HMBS volume to increase over 2024, as many loans will be securitized twice,” McCully explained.
This article is fascinating for its illusions. It is absolutely true that on a month to month basis HECM endorsments went up in October 2004. Yet the facts are that October’s endorsements are based on loans closed this last summer. The rise is more seasonal than a leading indicator of how the industry is doing.
So what trend is going on that is so troubling? Last fiscal year had the worse HECM endorsement total of any fiscal year since 2003. Worse the HECM endorsement count last month was 11.3% worse than that same total for October 2023. Then there are the HECM CNAs (case number assignments) which were lower for July 2023 than for July 2024 and the same was true for HECM CNAs for August 2023 and August 2024, warning that the HECM endorsements for the first quarter of fiscal 2025 is now all but certain to be lower than for the same period last fiscal year.
Although somewhat less certain, unless the Fed provides a sufficient drop (substantially more than 25 basis points) in interest rates later this week, chances are the expected rate index will remain higher after this Fed rate announcement later this week than it was on September 18, 2024 when Chairman Powell announced a 50 basis point drop in the Fed rate. This means it is very likely that the HECM endorsment count for the second quarter of this fiscal year will also be worse than that same count for last year and the HECM endorsements for the first six months of this fiscal year, the worst such count for any fiscal year since fiscal 2003.
Here is a more troubling trend, not only was fiscal year 2024 was the worst fiscal year for HECM endorsements since fiscal year 2003 but fiscal year 2019 was also the second worst, fiscal year 2023 was the third worst, and fiscal year 2020 was the fifth worst. The multi-year HECM endorsement count is still heading the wrong direction.
There is a reason for an industry analytical vendor to emphasize month to month trends that go up in a fiscal year that has the very real possibility of being the worst fiscal year for HECM endorsements since 2003, even worse than that total for last fiscal year (the fourth worst count for any fiscal year since fiscal year 2003 was fiscal year 2004).
The fact is that we need real help to grow but as to HECMs, right now that help can only come from HUD which seems very reluctant to increase either PLFs or the expected rate PLF floor. In less than two weeks, HUD should have released its annual report to Congress on the financial status of the FHA MMIF for the fiscal year ended 9/30/2024. It is hoped that this report will provide some basis to appeal to HUD for help.