Reverse Mortgage Origination on the Rise again?

The HECM (the only reverse mortgages insured by FHA) endorsement count for June 2020 was a surprising 4,209 when compare to what was expected based on Case Number Assignments of 4,716 (CNAs) for February 2020 and the annualized but modified conversion rate for May 2020 of 64.6%; the expectation was for about 3,050 HECM endorsements last month. So actual over expected was 54.3% higher than expected.

Looking on the surface, the HECM endorsements for June 2020 look like a substantial loss of 16.5% when compared to that count for May 2020 but the HECM endorsement count for May 2020 of 5,038 was no doubt an anomaly as a catch up month for HECMs not endorsed in April 2020 due to adjusting to the change in work requirements caused by the current pandemic. April 2020 had a long-time low of just 1,601 HECM endorsements.

Total endorsements for the first three quarters of fiscal 2020 is 29,660. During the same nine month period last fiscal year that total was 23,759 and for the all of fiscal 2019, the total was just 31,274. Based on an increase in the annualized and modified conversion rate to 66.6%, there is now some basis to look to total HECM endorsements for fiscal 2020 of just over 40,000. Running the numbers just days ago, the indicated total for fiscal 2020 was about 38,900 endorsements. The increase of just 2% in the conversion rate means about 1,175 more HECM endorsements this fiscal year based on about 58,700 CNAs during the twelve month period ended May 2020.

If the HECM endorsement count for May 2020 is excluded as the anomaly it is, the count for June 2020 is the best endorsement count for any month since February 2018. The February 2018 endorsement count was unusual since that was one of the key months for processing endorsements for the 20,400 CNAs (the highest such total for any month in the history of the industry) assigned in September 2017.

So why the strong showing for June 2020? There seems to be two primary causes: 1) HECMs that normally would have been endorsed in April or May 2020 that were endorsed in June 2020 and 2) the significant impact on the conversion rate from the 283% increase in HECM Refi endorsements (from 2,160 to 8,269) that has taken place in the first eight months of this fiscal year over that same time period last fiscal year. The conversion rate for this category of HECM is generally higher than other types of HECMs due to the familiarity of Refi borrowers with HECMs even before looking into a Refi.

Finally, just a few comments on the expected outlook for fiscal 2020. As to proprietary reverse mortgages, suspended offerings, the loss of a large lender who provided them, and the modifications to these offerings will probably not change much until there is less danger of the pandemic impacting the economy and thus the value of homes, meaning that if closings rise, it will not be by much. HECMs, on the other hand, will most likely see fewer HECM endorsements in fiscal 2021 when compared to fiscal 2020 but right now there is little reason to believe that the total HECM endorsement count for fiscal 2021 will return to the fiscal 2019 level of just 31,274. The reduction in HECM endorsements are expected to come as a result of lower demand for HECM refis in fiscal 2021.

As to HECM endorsements, it seems we are rising from the floor of HECM endorsements seen in fiscal 2019.