Reverse Refis Decline, H4P Loans Recover

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Reverse Refis Decline, H4P Loans Recover

Jun 19, 2023 | News | 0 comments

As of 2023, reverse mortgage endorsements have reached approximately one-third of the previous year’s total. Nevertheless, recent data from the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Administration (FHA), presented at the National Reverse Mortgage Lenders Association (NRMLA) Western Regional Meeting in Irvine, reveals an increase in Home Equity Conversion Mortgage (HECM) for Purchase (H4P) loans, as well as a significant decrease in HECM-to-HECM (H2H) refinance transactions during this year.

According to the information available, HUD’s endorsement statistics for 2022 revealed approximately 64,000 units with a maximum claim amount (MCA) totaling $32.1 billion. However, this year has seen approximately 20,000 endorsements with an MCA of $9.8 billion as of April 30, which is less than one-third of the previous year’s total.

Notably, the distribution of reverse mortgage product types has undergone a significant shift compared to the pandemic period. Traditional HECM loans make up 81% of the overall reverse mortgage business through April. Refinances constitute 14% of total endorsements, while H4P loans make up 6%.

Furthermore, the dynamics of refinance and H4P loans are also changing. In 2019 and 2020, refinance loans accounted for only 5% of the total, which then increased to 21% in 2021 and surged further to 42% and 45% in 2022 and 2023, respectively.

The COVID-era refinance boom has subsided, shifting the market’s focus towards new borrowers. The significant decline in refinance activity this year, accompanied by a notable increase in traditional HECMs, suggests that the industry is attracting borrowers who haven’t previously explored reverse mortgages.

H4P loans are also gaining momentum. Despite being considered more challenging to sell due to the involvement of licensed real estate agents, H4P loans accounted for 6% of the total share through April 30 in 2023, which is twice the full-year share observed in 2022.

The trend’s future is uncertain, but it shows the product type making significant progress. Borrowers’ rate preferences have shifted: the annual interest rate option dominated from 2018 to 2020 but declined to 0.1% by April 2023. In contrast, the monthly option has risen steadily, reaching 98.6% in 2023.