The reverse mortgage industry already knew that Home Equity Conversion Mortgage (HECM) endorsement volume in 2023 was cut nearly in half compared to 2022, but new data shows that the decline was not the same between the retail and wholesale channels of the business. The pullback in retail was not as severe as the one in wholesale.
HECM endorsements in the retail channel dropped by 43.4% in 2023, while the wholesale channel saw a steeper decline of 55% compared to 2022, according to recent data from Reverse Market Insight (RMI). To get a better understanding of the data and what happened, RMD spoke with RMI President John Lunde.
Additional context
Breaking out the channel data, which RMI does with its “HECM Originators” report, also gives more granular detail about the year’s HECM origination volume. The weakest link in originations by far was for HECM-to-HECM (H2H) refinances, which plummeted by more than 77% compared to the volume in 2022.
“Equity takeout” cases — i.e., new reverse mortgages that are neither refinances nor purchases — fell by 18.4%. HECM for Purchase (H4P) loans dropped by 6.2% from 2022 levels (although H4P remains an underutilized variation of a HECM).
Mutual of Omaha Mortgage firmly took hold of the No. 2 position on the reverse mortgage lender leaderboard, gaining 9.9% to finish last year with 6,393 loans. When including loans from its Cherry Creek Mortgage acquisition that closed last year, Guild Mortgage posted a gain of 7.2% to finish with 1,174 loans in 2023.
“It’s very interesting how few lenders grew in 2023, which was an impressive feat for the few that accomplished it,” Lunde said. “Most everyone I talked with had a really weak end of the year, likely brought on by a bad mix of higher interest rates and holiday seasonality, but recent conversations suggest 2024 is a bit better, if only a touch.”
The reverse mortgage industry endured a lot of change in 2023 in terms of the most active, leading lenders. Between the consolidation of Finance of America Reverse (FAR) and American Advisors Group (AAG), the entrance and exit of Cardinal Financial from the space, the exit of Open Mortgage and more, reverse mortgage origination is looking different this year when compared to last.
When asked if there’s any particular lender to watch out for this year, Lunde said it could come down to a hot industry topic that is getting renewed conversation: adding forward mortgage players into the mix.
“I think 2024 will be the year to start really seeing the impact of more forward distribution brought to bear on the reverse mortgage space,” Lunde said. “Most of the larger lenders are targeting it in some fashion, but several are more directly oriented toward it like Guild, Fairway, C2, Movement, American Pacific, etc.”
‘A cyclical option’
The less severe drop of equity takeout originations is something to watch, Lunde explained.
“I’d say the notable point here is how much less it dropped [compared to refis], even in the face of significantly higher rates than in 2022,” Lunde said. “That suggests once again that the sustainable business to be built in the HECM space remains in the new customer and purchase markets, and H2H should really form a cyclical option for lenders rather than a long-term foundation.”
Despite purchase loans remaining widely underutilized, a recent development on the policy side for this loan type from the Federal Housing Administration (FHA) could see H4P become more prevalent this year.
“The increase in concession limits for H4P is the biggest news on this front since the sub-product’s inception,” Lunde said. “I believe it could unlock a dramatically higher volume level and have heard some very interesting approaches to make that happen. I can’t wait to see the results in the next several months.”
As for refis, it’s clear that lenders are leaving them behind — or already did so long ago.
“Everyone has already gone away from them by necessity, or they’re simply not doing reverses any more if they didn’t,” Lunde said. “There just isn’t enough volume there to keep going.”
Looking ahead for wholesale
The severity of the drop in wholesale adds a dynamic to watch in the channel over the next several months. It is likely much more attributable to the interest rate environment than anything else, but industry consolidation plays a role as well, Lunde said.
“Brokers are always more responsive in the short term to interest rate environments, but I do think the consolidation is a headwind for the industry in many ways,” he explained. “Our industry suffers from a lack of distribution and awareness, so fewer lenders likely leads to less marketing and a smaller sales force, unfortunately.”
The method of origination also could be an issue, at least right now.
“The customer will always dictate which delivery method wins, but I do think it’s harder to close a reverse mortgage for a new customer in a call center relative to a refinance,” Lunde explained.
