These were the biggest reverse mortgage trends of 2022
In addition to providing key details on the health of the Home Equity Conversion Mortgage (HECM) ledger within the Mutual Mortgage Insurance (MMI) Fund, the Federal Housing Administration’s (FHA) Annual Report to Congress also provides a breakdown of the most commonly used product types and demographic trends in the connection with HECM’s business.
The annual report highlights an increase in HECM volume but also describes how claims against the MMI fund from the HECM program decreased in fiscal 2022; HECM Maximum Claim Amount (MCA) growth driven by higher appraised home values; racial and gender disparities among segments of reverse mortgage borrowers and changes in their median ages; and a breakdown of HECM loan types, including traditional, refinance, and purchase loans.
Breakout between HECM loan types: H4P is down, H2H is up
According to FHA data, a total of 64,437 endorsed HECM loans were originated in fiscal 2022 ended September 30, up from 49,207 loans in fiscal 2021.
As much as the HECM-to-HECM (H2H) funding boom defined reverse mortgage volume a year ago, overall H2H activity actually increased in FY2022. The H2H share of total reverse mortgage volume in FY2022 accounted for 48.88% of all registered endorsements in the year, a slight increase from the 46.72% recorded in FY2021.
However, 2022 was also the definitive end of the H2H refi boom, as higher levels of HECM for Purchase (H4P) combined with a significant increase in mortgage rates reduced the usefulness of such refinancing for borrowers.
Continuing a trend observed since 2015, the FHA also saw a sharp increase in consumer preference for adjustable rate mortgages (ARMs) in the HECM space. Compared to the period between 2016 and 2020, when borrowers largely preferred fixed income products, in FY2022 95.06% of all FHA HECM endorsements favored ARMs instead.
“This change in composition is in part a result of policies introduced in fiscal 2014 relating to the insurability of fixed income HECMs, including the elimination of the option of future draws and a reduction in the amount of principal made available to the borrower. ‘ the report reads regarding the ARM data.
As popular as it seems to be among a segment of dedicated reverse mortgage professionals, the rate of H4P loans declined again in fiscal 2022, continuing the downward trend seen over the past two fiscal years. H4P endorsements accounted for just 3.2% of all HECMs in FY2022. H4P penetration hit an all-time high in fiscal 2019 when it accounted for 7.4% of all HECM endorsements, but fell to 5.58% in fiscal 2020 and 4.17% in 2021, respectively. Still, the loan type has declined since fiscal 2009 gained ground where it accounted for just 0.47% of all HECM endorsements that year.
When it comes to payment plan options, borrowers continue to overwhelmingly prefer the Line of Credit (LOC) option, with 92.77% of all HECM endorsements falling under it in FY2022. This trend has existed since 2009, when it fluctuated between 85-93%.
Demographic, geographic reverse mortgage activity
While HECMs are only available to borrowers age 62 and older, there are some notable differences in the types of people within the age group who are looking for reverse mortgages. In terms of the gender gap between individual borrowers, women continue to outnumber them with 22,702 single female seniors completing HECMs in fiscal 2022.
Single men made up 12,555 reverse mortgage borrowers during the same period. However, multi-borrower loans continue to outnumber them with 27,318 endorsements, including two people.
In terms of the racial makeup of reverse mortgage borrowers, on the whole, they are much more likely to be White. White borrowers accounted for 45,829 borrowers in fiscal 2022, although stocks of black and Hispanic borrowers made more notations this year than they did in fiscal 2021.
In fiscal 2022, 71.12% of HECM endorsements served White borrowers, 6.07% Black borrowers, 5.03% Hispanic borrowers, 1.08% Asian borrowers, and 0.31% Native American borrowers.
Geographically, HECM activity remains concentrated in a few key states. California remains the largest single state for HECM production in the country, with 23.69% of total raw HECM volume and 31.88% of all HECM MCA originating there. This is also likely one of the reasons why the HECM program is so sensitive to changes in HPA levels, according to the report.
“The top five states represented 49.49% of new HECM endorsements in fiscal 2022, demonstrating that the geographic risk profile for the HECM program has become more concentrated in recent years,” it said. “As a result, future HECM performance will most likely be more dependent on economic factors such as house price increases in those particular states, particularly California where the share of HECM is 2.6 times higher than Florida, the second-largest state highest HECM Portion.”
As detailed earlier this week, the HECM ledger within the MMI fund achieved positive capital ratios for only the second time since 2015, according to an annual actuarial review of the fund’s finances and the FHA’s annual report to Congress released Tuesday . The value of the MMIF for 2022 is approximately $15.1 billion – a strong annual increase compared to $3.8 billion in 2021.
Read the FHA’s Annual Report to Congress for Fiscal Year 2022 at HUD.