volume. This continues to reinforce how important it is to be diversified in our sales channels.” Inflation, high interest rates and concerns about a recession left many borrowers feeling paralyzed in terms of what to do, she adds. “We felt it was important that we continue to clearly demonstrate the value and benefits of a reverse mortgage, especially during these turbulent times,” Macerato says. “We decided to renew our focus on new HECM business, rather than refinances, to address the ever-increasing number of eligible borrowers. With our robust training and marketing programs, we put a lot of emphasis on the core product features and worked with our loan officers and partners to identify and convert new borrowers during this time. Overall, we saw the value of being nimble and ready to adapt to quickly changing environments.” Rate Roller Coaster When the COVID-19 pandemic struck in March 2020, the Federal Reserve slashed interest rates as the stock market tumbled. After sputtering in 2020, the economy sprang back to life in 2021, thanks to billions of dollars in government aid to individuals, businesses and local governments. For reverse mortgage lenders, the cut in rates unleashed a flood of HECM-to-HECM refinancings. But as the economy warmed up and consumer prices began to soar, the Fed began ratcheting up interest rates, slowly at first and then more aggressively, as a means of tamping down inflation. The hikes eventually worked their way to the mortgage market, eating into home sales and refinancings. “At the beginning of 2022, HECM-to-HECM loan refinances were a substantial part of our business,” Macerato says. “These opportunities quickly diminished due to the rather sudden increase in rates during the second quarter, which significantly impacted the number of borrowers who could benefit from a HECM refinance. While reverse mortgages are in some ways less rate sensitive than forward mortgages, the direct relationship between interest rates and principal limit is a real headwind for borrowers looking to refinance to maximize loan proceeds.” As the year progressed, the increased rates, coupled with a volatile market environment, contributed to a difficult sales process, she adds. “While the mortgage industry as a whole had been largely unprepared for sudden changes to the interest rate environment, we were able to counteract this by shifting focus and emphasizing on the core product features,” Macerato says. Some larger banks got out of the refinance business entirely. Santander, for example, exited the market in February, and its CEO, Tim Wennes, predicted more would follow. “For many, especially the smaller institutions, the vast majority of mortgage volume is refinancing activity, which is drying up and will likely drive a shakeout,” Wennes said in an interview with CNBC in August. The reverse sector was not immune from the dropoff in refinancing, which was particularly acute in June and July. However, some lenders seem to have anticipated a decline and were already starting to move back toward traditional HECMs, says Rob Awalt, president of Allegiant Reverse Services in Sacramento, CA. Others quickly caught up. “I’m certainly seeing and hearing lenders all do what they do well, which is rebalance and refocus and then start pivoting toward what’s going to help make them and their borrowers be successful,” Awalt says, adding that the reverse industry is in better shape than the forward industry. Even if home values decline in the short term, for example, homeowners in a position to take out a reverse mortgage likely have seen long-term gains in equity. “I’ve seen this industry just put its head down and go to work,” Awalt says. “And that’s exactly what we’re doing. We’re just putting our heads down and going to work.” Growing the Market Robinson expects AAG to push several levers for growth in 2023. One involves building on changing perceptions of the reverse mortgage among adult children of potential Back to Basics continued on page 22 Melissa Macerato Rob Awalt REVERSE MORTGAGE / NOVEMBER–DECEMBER 2022 21
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