Reverse mortgage lenders vie for baby boomers amid rate surge

Home equity conversion mortgage endorsements declined in April, as surging rates could be shifting some business from the Federal Housing Administration product toward proprietary reverse mortgage offerings.

HECM endorsement totals fell 3.7% month over month to 6,253 from 6,495 in March, as both retail/direct lending and wholesale/broker channels saw a drop, according to the latest report from data intelligence provider Reverse Market Insight. Numbers in the retail space fell 5% to 3,543, while wholesale/broker endorsements slid by a smaller 2% to 2,710. By comparison in March, numbers rose by over 26% month over month. Despite the slowdown, April’s endorsements are still almost 50% higher than where they stood in the same month last year at 4,182. 

With interest rates increasing at a rapid pace in 2022, proprietary products could grab some of the share the HECM market would normally see, as baby boomers look for more favorable options to tap into their home equity. While Reverse Market Insight does not publish data on private-company loan offerings, it reported “a significant share of volume is shifting to proprietary in the current environment,” based on chatter from an industry conference last month. According to Black Knight, tappable equity recently hit a record $11 trillion. 

Accelerating rates reduce the amount of available funding a borrower can obtain through a HECM, said David Peskin, president of Reverse Mortgage Funding. 

“Proprietary loans give borrowers options they didn’t have in the past. These types of loans can give a borrower more proceeds, or provide the borrower with lower costs, depending on their situation,” Peskin said in a statement sent to National Mortgage News, adding he was encouraged by the volume he was seeing for his company’s product. 

At Finance of America Reverse, their proprietary mortgages — “the reverse equivalent of a jumbo loan” — represent “a significant amount of our overall volume,” said Scott Norman, vice president of field retail and director of government relations, in an emailed statement.

The company also offers a forward/reverse proprietary hybrid product, and Norman expects it also to be a viable alternative during a high-rate, potentially recessionary environment when borrowers may need to tap into home equity. “I would expect to see our proprietary products continue to fill those gaps in the short and long term,” he said. 

Earlier this year, HECM originators also saw the share of refinances relative to total activity slip to under half of all volume. While the drop-off in refinances has been less severe than movements in the forward-mortgage space, where they now account for less than a third of total origination volume, the declining numbers signal interest-rate pressures are influencing the HECM market as well. 

“Until we see those trends reversed, we do not anticipate seeing a significant amount of refinance activity,” Peskin said.

Despite the monthly pullback in April endorsements, six of the leading 10 reverse-mortgage lenders posted increased volumes that month. But the leading HECM lender by market share, American Advisors Group, saw its total fall by almost 10% to 1,814 from 2,014 in March. Finance of America Reverse grew its numbers 5% to 1,044 from 992, while the third-largest lender, Reverse Mortgage Funding, saw endorsements shrink 5% to 526 from 556. Rounding out the top five by volume were Longbridge Financial, with a 7% monthly decrease to 623 from 673, and Liberty Reverse Mortgage, whose numbers grew 4% to 616 from 590. 

Among the top 10 lenders, retail originator South River Mortgage, which began operations in 2019, experienced the largest growth in numbers over the preceding 12 months, with volumes up 86%. Mutual of Omaha Mortgage saw a 55% increase in endorsements, while Longbridge’s  numbers grew by 45%.