Are we on a trajectory for long-term organic growth? To answer that question we will examine the breakdown of reverse mortgage loan transactions.
The reverse mortgage industry has endeavored to diversify its product mix away from being overly-dependent upon the HECM and shift toward more private or proprietary loans. At one time some proclaimed their expectation that private loans would account for the majority of reverse mortgage loan volume.
However, that ideal business model has not materialized- perhaps in part to demographics, the COVID-19 pandemic, and historically-low interest rates. Another factor could be the modest percentage of seniors with high-valued homes when compared to those with homes closer to the national median home price.
Beyond the product mix of HECMs and proprietary mortgages are the transaction types of traditional HECMs (the first HECM for a borrower), HECM for purchases, and refinances of existing HECM loans.
Throughout most of 2020 and early this year, two forces have accounted for a significant jump in HECM originations: financial anxiety generated from the pandemic and HECM-to-HECM refinances.
The Clear & Present Driver of Endorsement Growth
One thing is clear; refinances of existing HECMs have accounted for the lion’s share of HECM endorsement volume growth. A random sampling of medium and large retail lenders in December 2020 found several with 50% or more HECM endorsements coming from refinances of existing HECMs. Not surprising considering home appreciation has allowed many homeowners to harvest more ‘equity’, and today’s low rates are providing principal limit factors at, or in some cases, below the interest rate floor.
While refinances play out in both traditional and reverse lending, the long-term strategy for market growth can be found in the expansion of our market among eligible homeowners, financial advisors, and real estate professionals. Being mindful of the long-game several brokers and lenders have kept pushing hard to expand relationships with outside professionals amid the refi boom knowing that the fruits of their labors will be realized whether home values are hot or tepid.