Whereas the reverse mortgage trade has seen sturdy enterprise numbers for a lot of the previous yr with endorsements largely staying above 4,000 loans a month, the quantity of Dwelling Fairness Conversion Mortgage (HECM)-to-HECM refinance transactions being executed alongside different market components frankly outdoors of the reverse mortgage trade’s management are doing little or no to commensurately broaden the penetration fee of the HECM class into the broader mortgage enterprise.
That is based on John Lunde, president of Reverse Market Perception (RMI) throughout a presentation on the Nationwide Reverse Mortgage Lenders Affiliation (NRMLA) Digital Summer time Assembly this month. Different parts working towards the trade embody the quantity of loans being assigned to the Federal Housing Administration (FHA), even because the variety of age-eligible debtors continues to extend in an oft-mentioned demographic shift.
Reverse mortgage penetration stays stubbornly low
Two key figures contribute to the development of reverse mortgage product penetration lowering over time though the reverse mortgage enterprise is in a typically productive place by way of uncooked numbers, Lunde explains.
“No one desires to see their market share go down,” Lunde says. “However, once we actually begin to drill into it a bit of bit, we’re seeing each of the numbers concerned right here transfer towards us. The variety of HECMs in servicing portfolios has been trending downward, mainly, ever because the 2017 principal restrict issue (PLF) adjustments. On the identical time, we do nonetheless proceed to see the variety of age-eligible home-owner households go up. So, for each of these causes, we’re truly seeing penetration go down.”
When it comes to why that is going down, task of HECMs — the place the lender could assign the HECM to the U.S. Division of Housing and City Improvement (HUD) when the mortgage stability reaches 98% of the utmost declare quantity (MCA) — has elevated, which doesn’t truly take away such loans from the broader penetration equation, he says.
“On the whole, one of many issues that’s been taking place rather a lot recently and over the previous a number of years is loans getting assigned to FHA,” Lunde says. “That really doesn’t take away them from the penetration equation. If we take into consideration loans exiting the servicing portfolio, sure, they’re popping out of a lender’s servicing portfolio, however they’re truly simply transferring over to FHA’s servicing portfolio. A kind of huge numbers there isn’t actually lowering penetration, however on the identical time, we take into consideration ‘how are the opposite, various factors taking place?’ We’re seeing very low rates of interest proper now, and sharply appreciating residence costs.”
These two issues will assist serve any reverse mortgage, nevertheless it does explicit service for lenders who need to bolster their refinance quantity, Lunde says.
“That actually supercharges and creates a refinance growth not dissimilar to the way in which the ahead mortgage world works there,” he says.
What a refinance growth does to penetration
One of many key points with a reliance on refinance quantity is simply that the reverse mortgage trade’s base of debtors doesn’t develop even when enterprise itself will increase by way of the uncooked numbers, Lunde says.
“After we do refinances as an trade, we would shift loans from one servicer’s portfolio to a different however we’re not including new prospects as an trade,” he says. “We’re not rising our market share in any respect [by doing that]. We could also be higher serving our present debtors, however once more, we’re not serving to to create that extra mainstream product consciousness, and an put in base that actually will get us additional by way of changing into a mainstream monetary product.”
Changing into a extra mainstream monetary answer for acceptable shoppers is, after all, a significant curiosity of the reverse mortgage trade because it continues to hunt out fruitful new instructional partnerships to speak how the product has advanced because the 2007-2008 monetary disaster. There are demonstrable indicators of progress being made on this entrance by way of the evolving reverse mortgage discourse outdoors of trade circles, however penetration stays low.
“We’re within the low 2% penetration vary,” Lunde says. “And once more, that’s down a bit of bit from a pair years’ previous. I don’t assume anyone would argue that that’s the proper place for us to be [in terms of our ability to] actually get widespread understanding and appreciation of the facility of the product in actually serving […] a shopper area of interest and a use case that actually does exist on the market, particularly as of us live longer. Most of their wealth is usually tied up of their residence fairness.”
The common most declare quantity (MCA) for all HECMs has sharply elevated over the previous couple of years based on RMI knowledge, however what has additionally elevated is the complete share of reverse mortgage endorsements made up of HECM-to-HECM refinances, Lunde explains.
“We will see that has sharply elevated, [there’s a] normal upward development all through the entire graph, however a pointy improve over 2020,” he says. “And at first of 2021, that has additionally coincided with a fairly sharp improve within the proportion of endorsements which might be HECM-to-HECM refis. So we will see that a part of what’s behind that is actually [those] elementary forces which might be out of our trade’s management. We’re simply, in some ways, reacting to that. And that’s these sharply growing residence costs, coupled with these low rates of interest actually assist supercharge this impact.”
Senior participation in ahead, and the finite useful resource of refinance debtors
Maintaining the low penetration of reverse mortgages in thoughts, it’s additionally value noting that many who would in any other case qualify for a HECM are nonetheless engaged with the normal mortgage enterprise, Lunde explains.
“When it comes to the age-eligible home-owner households that is perhaps eligible for HECM, someplace within the neighborhood of two-thirds of them have already got a ahead mortgage,” Lunde says. “So if we have been speaking about refinancing ahead mortgages and never apprehensive about a number of the qualification necessities for month-to-month fee and earnings, there’d be an enormous put in base for that to be refinanced. However, provided that we’re at that 2% fee, it’s merely a special story. And so, one of many issues to keep watch over and take into consideration right here is the truth that we merely don’t have that many loans on the market out there to refinance.”
The quantity of HECMs which will be refinanced will finally be exhausted, as it’s a finite useful resource of present reverse mortgage prospects who even have the flexibility to refinance within the first place, he says.
“We will’t see the same improve in HECM-to-HECM refinances over the following coming years, with out a considerably larger non-refinance origination quantity taking place, if for no different cause than simply merely to help future refinances,” Lunde explains. “It’s merely a phrase of warning and a few numbers to higher perceive that, frankly, there’s not a strongly sustainable, high-growth quantity right here by way of a HECM-to-HECM refinance area of interest.”