Reverse Mortgage Industry: Refinances Are Great, But New Borrowers Are Always Needed
Many participants in the reverse mortgage industry seem to agree with one basic idea: the long-term success and sustainability of the reverse mortgage product category.
While specific people within the industry have different feelings about whether or not the company will be able to attract enough new borrowers in the future, many seem to share a consensus on what exactly a increased refinancing volume for the fortunes of the company as a whole, and what the industry should do in response to these realities once the inevitable refinancing boom has passed into the background.
RMD has conducted outreach activities across the reverse mortgage industry, from major lenders to smaller ones, loan originators, brokers and analysts to share collective perspectives on the current state of the refinancing market and what that could mean for the future of the industry for the remainder of 2021 and beyond.
Strengths and weaknesses of reverse mortgage refinancing
A major lender that sees a refinance bump like many others is reverse mortgage financing (RMF). The attitude is pretty simple: borrowers need to be served, and if that means they’re looking for reverse mortgage refinancing, then they’re going to need a lender to help them get there.
“Like other companies in the industry, the refinancing business plays an important role in the overall business of RMF,” said David Peskin, president of RMF. “Obviously, if borrowers can save on interest charges or receive additional proceeds given the current value of homes, it makes sense that they refinance. This scenario is no different than the term mortgage space.
There is a similar attitude on the part of other major lenders, including HighTechLending according to its chairman, Don Currie. Refinancing a business is especially important in the area of reverse mortgages, especially since the borrowers served are already familiar with the specifics of the loan category. Still, that shouldn’t be the centerpiece of a reverse mortgage lender’s offerings, Currie says.
“HECM-to-HECM is a great company because your clients are familiar with the reverse and the learning curve is relatively vertical, and the gestation period is much shorter,” he says. “However, this shouldn’t be your primary business model for several reasons. The first is that the customer base is limited and a lot of us are targeting them marketing, which makes it a very competitive market. This will eventually result in high costs to produce the loans closed. “
Investors may not react positively every time to refinance pools, says Currie, because these loans have a few specific elements that work against them.
“Our investors don’t like just buying pools from HECM to HECM because the borrowers may be older and the loan term is short, which is not as worth as loans for younger borrowers.” , he said. “If we focus only on older, existing reverse borrowers, the income profitably paid by our investors will be reduced across the industry.”
Not necessarily worrying
However, a nationally operating broker might not think there is a general reason for reverse mortgage professionals to be concerned about, as there are other things that can help make reverse mortgages an attractive option for investors. new borrowers in the future. That’s according to Scott Harmes, national director of the C2 Reverse division of C2 Financial Corp.
“We are not necessarily very aggressive to go and get [refinance] business, but when there is a real benefit, we deal with it with the borrower, ”he says. “There is a huge advantage in attracting new borrowers to the market, and it is this huge increase in [home values]. In 2018-2019 we have seen real estate values double since 2008. Now I think we have seen them increase by 150-200% since 2008-2009.
This means that an elderly person who has not done a cash refinance since the resumption of the stock market crash of the late 2000s – which could affect a significant portion of the elderly – will now have a reverse mortgage option. which may not have been available in previous years.
“So that means any senior who hasn’t made a refi withdrawal since, say 2010, probably has enough equity to be eligible for equity for a HECM or a homeowner’s reverse mortgage,” says Harmes. “And that means a lot more new borrowers available to us because of this increase in equity.”
What top refis say about the business and data trends
Trends in refinancing volume could come with some money in terms of potential lessons the industry can learn about doing business in the future according to Patty Wills, National Director of Reverse Mortgage Retail Sales at Open Mortgage. .
“We see the need to increase the penetration of HECM as a renewed opportunity to review some fundamentals of reverse mortgages, in addition to our internal reviews of customer service and communication of all reverse mortgages,” said Wills. at RMD. “We look forward to working with the HUD / FHA through NRMLA and other means to make the HECM process less seemingly complex and more understandable to the general public. We cannot enter this market until we are continually told that our product is too complicated. “
In recent months, reverse mortgage industry analysts have sounded the alarm about the high level of refinancing – and potential existing loans that will be eligible for refinancing – being a stagnant, non-revolving resource for the lending industry. reverse mortgages as a whole. . However, according to recent data compiled by Reverse Market Insight (RMI) and shared with RMD, the trend of reverse mortgage refinancing has only grown over the year with no signs of slowing down for the immediate future.
The industry for the whole year operated at a threshold of over 4,000 HECM loans per month in gross volume, which is a fairly strong balance sheet compared to previous years, especially after the changes made in 2017. to the main limiting factors. the Federal Housing Administration (FHA).
However, as analysts noted recently and confirmed by RMI data shared with RMD, the refinancing volume only increased to occupy a larger share of the total reverse mortgage volume almost every month in 2021. The period between January and February is the only point this year. which saw refinancings decline month over month, with January’s rate of 36.5% of total volume surpassing February’s total of 35.3%, to around 1,500 loans.
Since March, the refinancing volume has only grown to take a larger share of the total volume of HECM. The percentage rate of refis for March stands at 39.7% of the total volume of HECM. In April, this figure rose to 41.3%, while in May, 44.3%. June is quite surprising, however, since refinancing volume represented 49% of HECM volume for the month, totaling over 2,000 loans out of 4,158 for the month.
As the industry and some of its stakeholders describe a renewed need to attract additional borrowers into the industry fold, we will have to see how long the reverse mortgage refinancing rate can rise in the coming months. As with all things, time will tell.