HECM surges, case numbers flat
Recognition growth has accelerated significantly this year, but a flattening of caseload allocations in April could lead to slower volumes in the coming months, according to RMI’s latest HECM Lenders report.
RMI president John Lunde said good numbers are always encouraging but must be combined with broader business realities.
“I’m always wary of monthly fluctuations, but overall I’m encouraged by the steady growth so far this year,” he said. “I believe that despite the challenging rate environment, originators spending their time on a more difficult but more sustainable path in products such as LO mortgages is contributing to this.”
The total number of cases issued fell 0.4% to 3,488, essentially maintaining the peak in March but enough to be reflected in future numbers. Equity outtake cases – loans that are neither purchases nor refinances – also fell slightly by 0.9%, while purchases fell by 0.5%.
However, one loan type that did see an increase was HECM-to-HECM (H2H) refinances, which grew 3.3% this month. When asked about it, Lund said it’s an effort to strike when loan officers and borrowers see an opportunity.
“Strong house price levels and appreciation in some markets will continue to create very limited refinancing opportunities, as will 10-year rates falling, but I think the former is more important than the latter given recent rates,” he said.
Interestingly, of the geographical areas tracked, the Southeast/Caribbean managed to overtake the largely dominant Pacific this month. Lund said certain business dynamics helped drive the results.
“The Pacific has long been the leader in the industry, but it’s great to see the rise of the Southeast,” he said. “Given Pacific Bank’s large installed base of existing loans, its refinancing volume is disproportionately large, which opens the door to more parity as the refinance segment declines.
“This is definitely a case where originators should use our retail dashboard to go deeper back into the Southeast market to determine where they can best position their sales and marketing resources to capture that volume.”
Ultimately, however, future growth in endorsements throughout the summer depends on caseloads.
“If we don’t see an increase in cases over the next few months, then we can expect support to level off and possibly even decline, but hopefully we’ll see a return to growth in the next report,” Lund explained.
HMBS issuance: Liquidity improves, but interest rates dominate
HMBS issuance remains at historic lows. That number is not expected to come close to the record set in 2022 by the time the year is completed, according to commentary accompanying the New View Advisors data.
Still, first-participation production figures for May 2024 were ahead of the same month a year ago, with improved liquidity, said Michael McCully, partner at New View Advisors.
“Spreads have narrowed and investor interest in HMBS and HECM acquisition securitizations has increased,” McCully said. “Expectations of peaking interest rates and Ginnie Mae HMBS 2.0 may both help improve execution and liquidity. “
But ultimately, he said, interest rate movements will continue to be tied to how the industry performs at issuance and volume levels.
“As we have said before, HECM issuance – and HMBS issuance – is highly correlated with interest rates,” McCully said. “As the 10-year Treasury bond grows, trading volume will change accordingly. Issuance has not increased much in the past two months, and issuance remains at historical lows.
Due to Ginnie Mae’s policy changes last year, there were 22 pools with a total size of less than $1 million in May. McCully explained that this and other policy changes by government-owned companies have helped improve liquidity conditions, but smaller pools have another major benefit.
“Every program improvement from Ginnie Mae and FHA helps with mobility,” he said. “But million-level capital pools are more helpful than liquidity in reducing intra-month financing costs. The reduction in intra-month financing costs can be significant, especially for issuers with large HMBS portfolios.
