HECM volume spikes, but case numbers are flat
The pace of endorsement growth has notably increased this year, but the flatness of April’s case number assignments could result in volume slowdown in the months ahead, according to RMI’s newest HECM Lenders report.
Good numbers are always encouraging but must be taken in concert with broader business realities, according to RMI President John Lunde.
“I always caution about monthly volatility, but I’m generally encouraged by the steady growth so far this year,” he said. “I believe originators spending their time on the harder but more sustainable path is responsible for this, in spite of a challenging rate environment, like bringing forward mortgage LOs on board with the product.”
Overall cases issued dipped by 0.4% to 3,488, which mostly maintained the peak seen in March but close enough to par that it could reflect in future volume. Equity takeout cases — loans that are neither purchases nor refinances — also dipped slightly by 0.9%, while purchases declined by 0.5%.
One loan type that did increase, however, were HECM-to-HECM (H2H) refinances, which jumped by 3.3% during the month. When asked about it, Lunde said it’s about striking when loan officers and borrowers see a chance.
“The strong home price levels and appreciation seen in some markets will continue to create very limited pockets of refi opportunity along with dips in the 10-year rates, but I think it’s more the former than the latter given recent rates,” he said.
Interestingly, among the tracked geographic regions, the Southeast/Caribbean managed to overtake the largely dominant Pacific region for the month. Lunde said that certain business dynamics helped push this result.
“Pacific has long been a leader in the industry, but it’s good to see Southeast picking up,” he said. “Pacific had disproportionate refi volume given its large installed base of existing loans, which opens the door for more parity given declines in the refi segment.
“It’s definitely a case where originators should dive back into the Southeast markets in more depth using our retail dashboard to identify where they can best position their sales and marketing resources to capture that volume.”
At the end of the day, however, the future growth for endorsements through the summer months rests on case numbers.
“If we don’t see increases in case numbers in future months, then we can expect endorsements to plateau and possibly decline, but hopefully we’ll see resumed growth in the next report,” Lunde explained.
HMBS issuance: Improved liquidity, but rates rule
HMBS issuance remains at historically low levels. It is not expected to come close to the records set in 2022 by the time this year is said and done, according to commentary accompanying the New View Advisors data.
Still, the first-participation production figure of May 2024 outpaced that of the same month one year ago, and liquidity has improved, according to Michael McCully, a partner at New View Advisors.
“Spreads have tightened and investor interest has improved for both HMBS and HECM buyout securitizations,” McCully said. “An expectation of rates peaking, and Ginnie Mae HMBS 2.0, are likely both contributing to the improved execution and liquidity.”
At the end of the day, however, rate movements will continue to correlate with industry performance on both issuance and volume levels, he said.
“As we have stated previously, HECM origination volume — and therefore, HMBS issuance — is highly correlated to interest rates,” McCully said. “As the 10-year Treasury goes, so goes volume. The increase in issuance volume in the past two months is marginal and issuance remains at an historically low level.”
A total of 22 pools in May featured aggregate sizes of less than $1 million, stemming from a policy change made last year by Ginnie Mae. This and other policy changes made by the government-owned company have helped the liquidity situation, McCully explained, but the smaller pools have another primary benefit.
“Every program enhancement from Ginnie Mae and FHA help liquidity,” he said. “But the sub-million pools help more with lowering intra-month financing cost than with liquidity. The reduction in intra-month financing cost can be significant, especially for issuers with large HMBS portfolios.”