HECM trading volume: Some major institutions buck the trend
Despite the industry-wide decline in transaction volume, four of the nation's top 10 reverse mortgage lenders posted profits in June.
Finance of America (FOA), which has lagged behind Mutual of Omaha Mortgage in recent months, saw its loan approvals increase 4.1% in June to 534. Guild Mortgage also saw its loan approvals increase 19.1% to 56, while South River Mortgage and Hi-Tech Lending also saw positive growth.
Asked if the drop in loan volume could lead to fewer loans being issued this summer, RMI President John Lunde said that's a possibility.
“From a caseload perspective, I don't expect approvals to increase dramatically this summer, but will likely remain flat in recent ranges,” he said.
Reverse mortgage use cases also declined in June. “Equity take-out” loans, which are reverse mortgages that are neither purchases nor refinances, were down 4.8% from May. Purchases were down 10.8%, and HECM-to-HECM refinances were down a much larger 27.5%.
“The decline in refinancings is not a surprise, as the increase in loan limits earlier this year was likely the main driver. Lending opportunities were always going to be very limited without a significant decline in interest rates,” Lunde said of the data. “Purchases are an area we are watching closely as we expect the recently implemented adjustments to settlement costs to open the door more fully. Equity acquisitions have been the most stable as the largest segment, so the decline in volatility in May makes perfect sense.”
Asked how four of the top 10 lenders managed to avoid a drop in loan approvals in June, Lunde said geography is a key factor in predicting how this will play out, as the individual choices lenders make to appeal to potential customers often determine how well they do.
“While geographic regions are typically more in line with industry-wide trends, individual lenders can generate significant performance gaps solely from business decisions such as increasing or decreasing marketing spend, prioritizing or de-prioritizing recommendations from a resource standpoint, or carving out an attractive in-house sales niche (such as forward loan officer relationships or servicing portfolios),” he said.
Geographically, the regions with the smallest declines are also the most notable for the industry: In the Pacific/Hawaii region, loan volume fell just 2.6% to 594 during the month.
As FOA and Mutual of Omaha continue to battle it out for dominance in the reverse mortgage industry, Lunde and RMI will be watching closely, he said.
“These two companies have very different stories and it will be interesting to watch them battle it out for the top spot in the near future,” Lunde explained. “Mutual of Omaha has a great brand and customer base outside of reverse lending that will help them dominate. Meanwhile, FOA has led the industry in wholesale for several years and recently acquired the largest lender with a particular strength in retail. I'm excited to watch these two companies battle it out for the championship.”
HMBS issuance: Moderate decline remains at record low
As has been the case for some time, HMBS issuance remains at historically low levels and is not expected to approach the records set in 2022 by the time the year ends, according to a New View commentary accompanying the data.
HMBS issuance totaled $497 million in June, down $29 million from May, but the number of pools issued remained the same as in May (86 pools). Among the majors, FOA was again the top issuer with $159 million, up $2 million from May.
Longbridge Financial Inc. fell $8 million from the previous month to $110 million, while Mutual of Omaha and PHH Mortgage Corp. (soon to change its name to Onity Mortgage) issued $95 million and $85 million, respectively, in June.
Asked about the difference in issuance amounts among the top companies, Michael McCulley, a partner at New View, said it wouldn't have much of an impact.
“There's nothing to read into the difference in issuance between the top four companies. Collectively, these companies have maintained 90% to 95% market share for many years,” he said. “But 11 issuers overall is an oversupply for an industry expected to do less than $6 billion in issuance in 2024.”
Initial first-time participation loan volume also fell in June, from $361 million in May to $331 million in June. New View explained that new loan volume declined significantly year-over-year when compared with data for the same period in 2023. Of the 86 pools issued in June, 24 were first-time participation pools and 62 were tail pools with subsequent participation.
McCully said the month-to-month changes are largely inconsequential.
“The industry is not in a good place because of low transaction volumes,” he said. “We'll wait to see how HMBS 2.0 impacts the industry and whether rates start to decline more permanently.”
When asked how New View forecasts issuance for the rest of the year, McCulley said it's pretty simple.
“All else being equal, doubling first-half production would provide a reasonable projection for full-year issuance,” he said.
New View also updated its HMBS issuer rankings table for the first half of 2024, showing FOA accounting for 31.9% of the total market, followed by Longbridge (21.4%), Mutual of Omaha (18.4%), PHH (18%) and Traditional Mortgage Acceptance Corp. (3.6%).