Reverse mortgages see steep monthly pullback in September

Endorsements of home-equity conversion mortgages fell to a two-and-a-half year low in September, as lenders cautiously eye competing home-equity products, such as HELOCs, Reverse Market Insight found.

Total endorsement volumes dropped 43.5% to 3,235 from 5,727 in August, with numbers in all U.S. geographic regions trending downwards. Endorsements also fell on a monthly basis at each of the ten top HECM lenders. The last time numbers came in lower was in April 2020, during the early stages of the coronavirus pandemic, when the volume plummeted to 1,601.

This year's dramatic surge in interest rates, which caused refinances to decline by more than 80% on a year-over-year basis according to the Mortgage Bankers Association, now appears to be hitting reverse originators as well. While the slowdown itself comes as no surprise, lenders are looking at what the large September drop might say about current reverse-mortgage market trends as a whole.

"The expectation is that refinances have dropped dramatically in September, but any significant weakness beyond that could mean the industry is struggling for traction in positioning reverse alongside HELOCs and [home equity] loans in inflation/housing/interest rate conditions that should be very conducive to new business," the report said. 

A rise in tappable home equity helped contribute to elevated HECM volumes in fiscal year 2022, which ran from October 2021 to September 2022, according to data from the Department of Housing and Urban Development. Through August, HECMs totaled 61,257, compared to 49,207 for the entirety of FY2021.

Although equity still remains high after topping off at a record $11.5 trillion in the second quarter this year, home values have since retreated, with some properties in West Coast markets losing as much as 20% of their value over the summer, mortgage technology and data provider Black Knight said.

HUD's Western regions also saw the greatest declines in HECM endorsement volume across the country. Northwest/Alaska monthly numbers plunged 55% in September to 294 from 654 in August. The Pacific region, consisting of Arizona, California, Hawaii, Nevada and other U.S. territories, reported 1,007 endorsements compared to 2,025 in August, a drop of 50.3%.

HECM endorsements volumes fluctuated widely throughout the summer. September's falloff comes after volumes rose by 16.2% on a monthly basis in August, which followed a 17% dip a month earlier. Data from Reverse Market Insight's monthly reports includes numbers for Federal Housing Administration-backed home-equity conversion mortgages only and excludes proprietary products. 

At the same time that mortgage rates have climbed, reverse mortgage lenders find themselves facing a growing list of nonbank originators offering home-equity products. In efforts to drive business and counter diminished incentives for refinance mortgages, several lenders, including loanDepot, Rithm Capital and Guaranteed Rate, signaled their intentions to roll out home-equity lines of credit this year, while alternative financing companies, Hometap and Point raised millions in investor capital as they grew their national footprint. Rocket Mortgage, the country's  top originator by volume, also introduced a home-equity loan this summer.

Overall, booked dollar volume for home-equity products has increased by 46.8% in the 12-month period between August 2021 and 2022, according to data from financial-services consulting firm Curinos. 

All of the leading HECM lenders saw their number of endorsements shrink in September, American Advisors Group, which commands one-third of total market share, posted a 50.2% month-over-month decline to 609 from 1,222. Finance of America Reverse reported a 44.3% drop to 277 from 498, while Mutual of Omaha Mortgage recorded the smallest decrease of 7.3% among the top 10 lenders, with endorsements dropping  to 467 from 504.