Impact of Rising Rates on HECM Volume

According to endorsement data compiled by Reverse Market Insight (RMI), the reverse mortgage market has begun to exhibit notable shifts, particularly influenced by recent interest rate hikes. The 10-year Constant Maturity Treasury (CMT) index showed a significant spike late last year, leading to a gradual decline in HECM endorsements as reflected in March figures.

Most of the leading lenders experienced decreased endorsement activity, with HighTechLending being a notable exception—it reported a remarkable 29.3% increase, achieving a total of 53 loans, the highest monthly figure since September 2022. Conversely, Mutual of Omaha Mortgage, the principal HECM lender, endorsed 476 loans, a slight decline of 2.1%, while Finance of America (FOA) saw a lower endorsement count.

Insights shared by RMI’s Director of Client Relations, Jon McCue, reveal a clearer understanding of these trends now that updated application data has been released by the FHA. Following a pause in application data publication, the recently published statistics indicate a steep decline of approximately 41% from previous figures, confirming earlier concerns regarding market responses to rising rates.

“Up until this week, we would have said that this was expected simply based on the steep increase in the 10-year CMT we saw in the fourth quarter of last year,” said McCue.

This application downturn aligns with the reductions in endorsements, though McCue noted an encouraging sign—endorsements are not decreasing as rapidly as applications. This resilience could give a glimmer of hope to industry participants and loan officers, who are now observing a heightened interest in reverse mortgages driven by specific financial needs among retirees.

Conversations amongst professionals indicate that clients are increasingly turning to reverse mortgages to address various financial pressures, such as surging insurance premiums.

HMBS Issuance Trends Through March

The March issuance of Home Equity Conversion Mortgage-Backed Securities (HMBS) reached $487 million, marking a $17 million increase from February. While this figure reflects optimism, it also came on fewer trading days, which means the growth isn’t as substantial as it might initially appear, according to Michael McCully of New View Advisors.

Finance of America held its position as the leading HMBS issuer, with March totals rising by $26 million to $151 million. It was followed closely by Longbridge Financial, which issued $111 million, and PHH Mortgage Corp/Liberty Reverse Mortgage at $99 million. However, Mutual of Omaha’s issuance fell from $95 million in February to $81 million in March, as Reverse Mortgage Funding (RMF) continued to show zero issuance due to its portfolio’s current status with Ginnie Mae.

“The capital markets remain healthy,” said McCully, addressing concerns regarding RMF’s inactivity. “Issuance generally follows lockstep with endorsements.”

The month of March also saw a rise in first-participation production, which increased by $14 million to $317 million. Of the 70 pools issued that month, 21 were original participations, while the remainder consisted of subsequent participations.

Amidst these developments, McCully advised industry stakeholders to temper their expectations regarding HECM volume. He expressed skepticism about any imminent surge in activity in this segment, emphasizing that smaller month-to-month fluctuations are unlikely to lead to significant overall growth.

“There is little prospect for a significant increase in HECM volume for the foreseeable future; small changes month to month will not be significant,” he concluded.