Dwelling Fairness Conversion Mortgage (HECM)-to-HECM (H2H) refinances remained at almost 50% of whole reverse mortgage business endorsement quantity in February 2022, in line with the latest HECM Originators report compiled by Reverse Market Perception (RMI). Whereas reaching an all-year excessive for 2021 in December, January 2022 pushed whole reverse mortgage business quantity even greater. Whereas February recorded a slight dip, enterprise ranges nonetheless remained elevated and quantity reached an historic excessive the next month.
“We will […] say that refis continued at a excessive stage at simply over 50% of all endorsements in February – in step with the previous 9 months beginning final June in a decent vary between 48.6-51.four%,” RMI mentioned in its commentary accompanying the brand new February information.
HECM-to-HECM refinances composed 45.9% of all HECM loans in 2021, and 50.eight% of all loans within the fourth quarter of the 12 months. In This fall 2020, HECM refis made up 35.6% of all endorsements, and in FY 2020 they made up roughly 25% of endorsements primarily based on information present in FHA’s Annual Report back to Congress.
Ongoing reverse mortgage refi quantity
Whereas it was initially thought that the refi growth noticed in 2021 would possibly diminish this 12 months primarily based on greater charges and slower ranges of dwelling value appreciation (HPA) compared to final 12 months, H2H refi quantity has remained largely in step with the degrees seen significantly on the finish of 2021.
Nevertheless, it could be too quickly to find out the complete impression of rising charges primarily based on how lengthy the info takes to completely digest in line with John Lunde, president of RMI.
“I believe it’s key to have a look at the 10-year CMT historical past right here as timing is vital,” Lunde explains. “That charge rose to the 1.7-2% vary earlier this 12 months, however actually didn’t soar nearer to 2.5-Three% till final month. Given the delay in endorsements from funding, we received’t see the ache from that larger leap for a number of months but.”
Charges are doubtless secondary to the degrees of HPA that debtors have been observing, even when HPA on the whole seems to be slowing in 2022 in comparison with final 12 months. Nevertheless, simply because it’s slowing doesn’t imply that it has stopped rising.
“Unimaginable HPA is a big a part of this equation, because it straight provides to borrower funds out there,” Lunde says. “That has at all times been the basic enchantment of H2H even again to the housing growth within the early 2000s, however the charge sensitivity is more moderen since FHA lowered the anticipated charge flooring to three% from 5% in October 2017 (and earlier than that 5.5%). That creates a compounding impact for H2H in intervals the place charges are low and/or falling and residential costs are rising.”
Indicators of slowdown?
Whereas some have speculated that the refi growth will decelerate, simply because such a prediction has but to materialize doesn’t imply that it’ll by no means occur. Letting sure realities additional solidify might be important to any potential slowdown that would nonetheless play out, Lunde says.
“We’re seeing a major leg of the H2H enterprise beneath strain with dramatic jumps within the 10-year charge that I might anticipate to dampen volumes there considerably,” Lunde explains. “However so long as HPA stays explosive, it is going to proceed to create alternatives for debtors to refinance.”
Investor exercise is one other metric to watch on this state of affairs, and refinances may make that aspect of the equation extra difficult as time goes on.
“Proper now the business is experiencing decrease HECM-backed Securities (HMBS) pricing as traders anticipate important future refinance exercise, however making it up on quantity,” Lunde explains. “If refis begin happening and underlying H2H drivers look much less favorable, will HMBS pricing return up as lender volumes are pressured or will the business pay for refi good points for longer?”
The refinance challenge because it stands now stays unsettled, Lunde says. Meaning the business ought to proceed to watch business metrics to see how the dynamic may accept the rest of the 12 months.
“We haven’t seen the top of the refinance story — simply the up leg,” Lunde says. “Keep tuned to see the place we go from right here.”
When March volume noticed such a excessive threshold, RMI’s Jon McCue echoed among the sentiments expressed by Lunde because it pertains to the 10-year CMT charge.
“Our business has executed a wonderful job by the primary Three months of the 12 months with quantity, however with the 10-year CMT charge rising, one can assume there could also be some turbulence forward particularly for these trying to do H2H,” he defined earlier this month. “Now is a superb time to be shifting enterprise fashions again to new reverse mortgages and H4P as methods to proceed to drive quantity going ahead.”
Reverse mortgage lender methods, utility for the borrower
Sure lenders have emphasised that 2022 methods will revolve round capturing refinance quantity whereas seniors can nonetheless profit, however making ready for the creation of latest mortgage manufacturing as a precedence when refis grow to be much less fascinating for debtors and lenders.
“From a shopper perspective, there’s positively the flexibility to place more cash into the pockets of seniors, which is an absolute optimistic and I’m ecstatic we will do this,” mentioned Ed Robinson, president and COO of American Advisors Group (AAG) to RMD in February. “[However, there] is direct downward strain on mortgage servicing rights (MSRs), on margins and achieve on sale. What I consider many have missed is the truth that the business is definitely lacking an actual alternative to broaden new manufacturing due to with the ability to go after the simple refi cash if you’ll. So, it’s with that lens — particularly with the lens that we don’t simply wish to chase simple cash — however with the view that charges will certainly rise.”
Due to heightened refinance exercise, Wade Pfau added a brand new part on H2H within the newest version of his reverse mortgage e-book. Refinances may have a transparent borrower profit, he advised RMD, however that ought to at all times stay on the forefront of any refinance choice made by a borrower.
“That was one other space I added simply because as famous, there’s been a lot progress within the refinance choice,” Pfau advised RMD in March. “The warning is simply to make it possible for there’s a considerable improve in borrowing capability by doing that, as a result of there might be prices concerned in setting one up. And in case you assume it’s possible you’ll by no means use that further principal restrict anyway, it will not be definitely worth the want.”