If you’ve heard it once, you’ve heard it a thousand times: the heightened interest in the reverse mortgage business brought on by the onset of the COVID-19 coronavirus pandemic certainly did create new business with previously unengaged customers, but at or over half of the high business generated in 2021 was made up by existing Home Equity Conversion Mortgage (HECM) customers seeking to take advantage of a historically low rate environment with a HECM-to-HECM (H2H) refinance transaction.
According to most industry observers, companies and individual loan officers who have spoken with RMD over the past few months, H2H refi business has remained strong through 2022. How long that will remain the case is anyone’s guess, however, and industry observers and participants are either recommending a focus on new customers or are already putting such a focus into practice.
Additionally, lenders are growing increasingly optimistic in 2022 regarding proprietary reverse mortgage product uptake, according to discussions with industry professionals.
The reverse mortgage LO perspective
Some loan officers are simply seeing too much volatility in pricing structures at the moment to want to rely a lot on refinances. This is the case with Tim Kennedy, director of business development at U.S. Mortgage Corporation in New York, who attempted to check in with some previous clients while the rate environment earlier in the year was favorable. However, if they waited too long on certain required pieces of information, that viability simply passed, he says.
“[Refis] were not an overwhelming part of my business, but I certainly did several in 2021,” Kennedy said. “This year, in the first quarter I did a couple, but now I have a number of them that I’m going to run into issues with when I go to reprice them or rerun the numbers. […] That’s because they may have been held up on getting the required information or were held up on getting the counseling done, or the appraisal was delayed. Whatever the case may be. I could go from closing a number of HECMs to closing none, based on the environment we’re in.”
For Bruce Simmons – a reverse mortgage specialist with American Liberty Mortgage in Denver, Colo. – he knew that the refi boom represented a good opportunity in his business and prudently aimed to “ride the wave” of H2H business while it seemed viable. While refi business inquiries still come in, it makes less sense for those inquiring about it causing him to shift focus away from such business.
Simmons also has a unique outlet in that he has a regular reverse mortgage radio show in his community. As he saw rate increases, he informed his listeners of how that could impact their potential interaction with a reverse mortgage product.
“I was explaining how the interest rate determines the loan amount,” he says. “So as rates were going up, I explained that it’s going to be harder and harder to qualify for a [H2H] refinance. So while rates were lower I would tell people that if they think that this is something they’d want to do, they should [look at it quickly] and see if we could do it.”
Still, Simmons kept in his mind that the “wave” would crest soon, so looking beyond refi was an inevitability.
Refis also simply stopped making sense for the customers of Rich Pinnell, a reverse mortgage originator with Primary Residential Mortgage, Inc. (PRMI) in Redding, Calif. Instead, he has shifted his focus to offering proprietary products for customers who qualify, only recently having customers for which such a loan with a higher home value would make sense in his community, he told RMD.
Analysts: reverse mortgage industry is primed for new business
When data emerged pegging the rate of H2H volume as over 50% of the total business observed in February, Reverse Market Insight (RMI) President John Lunde described for RMD about how refi business is under new pressure because of rates. However, with home price appreciation (HPA) remaining generally high albeit slower than it was in 2021, that will create chances for H2H volume to continue at higher levels.
“We’re seeing a significant leg of the H2H business under pressure with dramatic jumps in the 10-year rate that I would expect to dampen volumes there somewhat,” Lunde explained in April. “But as long as HPA remains explosive, it will continue to create opportunities for borrowers to refinance.”
When breaking out the performance of the industry for the full first quarter of the year, RMI Director of Client Relations Jon McCue explained for RMD that additional pressure on the forward side is beginning to have an impact on HPA at a small level, which could become a bigger factor in the future.
“It is still probably too early to fully commit to this statement, but we have been seeing H2H volume continue to slightly dip for the past couple of months, and this was prior to the recent rise in the 10-year CMT,” he explained last week. “With that said, it will certainly be more challenging to drive 48% – 50% of our business as H2H. Also with rates rising on the forward side, we are already beginning to see some cooling on home prices in certain markets, so if home prices cool too rapidly then that too will impact H2H.”
New business and proprietary products driving current interest
Last week at the National Reverse Mortgage Lenders Association (NRMLA) Western Regional Meeting in Irvine, Calif., speakers and attendees at the event described for RMD that while H2H refinance volume appears to be slowing, additional interest in cultivating new business within the leadership at major lenders is beginning to take hold.
On top of that, proprietary reverse mortgage business — private-label products without the sponsorship of FHA and offered by several major lenders — are seeing an uptick in interest, even as the 2022 national reverse mortgage lending limit is very nearly $1 million.
Calendar year origination of HECM loans previously placed the 2019 origination figure at 34,800, indicating that proprietary originations make up 9.7% of the total figure of HECM originations in calendar 2019, based on data featured in a late 2020 Home Mortgage Disclosure Act (HMDA) report released by the Consumer Financial Protection Bureau (CFPB).
However, sources described for RMD that proprietary volume in 2022 in some cases is demonstrably higher, though to what degree the increase could be was not indicated, and specific numbers were not made available. However considering that lenders are seeing greater interest in proprietary products — albeit on an anecdotal basis — RMD will be keeping a closer eye on these developments in the months ahead.
