Reverse mortgage endorsements fall to 1,790, the lowest since April 2020, as the 10-year yield climbs 85 basis points

Lenders closed 1,790 federally insured reverse mortgages in September, down 6.7% from 1,919 in August. That is the lowest monthly total since April 2020, according to Reverse Market Insight data reported by HousingWire. HECMWorld, using the same data, called it the lowest September in more than a decade, and counted 63 active lenders, down from 102 in November.

The securities funded by these loans shrank faster. HECM-backed securities (HMBS) issuance fell to $446 million in September, down $91 million or 17% from August, New View Advisors found. First-participation pools, the part that represents brand-new loans, fell to $266 million, from $309 million in August and $313 million a year earlier.

Why rates hit this product harder than a regular mortgage

A Home Equity Conversion Mortgage, or HECM, lets a homeowner aged 62 or older borrow against the house with no monthly payment. How much they can borrow, called the principal limit, depends on their age, the home's value and an "expected rate." Under HUD's rules, lenders build that rate from the 10-year Treasury rate plus a margin, HECMWorld explains. A higher expected rate means a smaller principal limit. The same 75-year-old in the same house qualifies for less money when Treasury yields rise.

The 10-year Treasury yield was 5.24% on October 1, up from 4.39% on May 1, according to the Treasury's daily yield curve. That is a rise of about 85 basis points while these loans were moving through lenders' pipelines. New View warned that issuers "will struggle to maintain this rate of production with the 10-year Treasury yield at its highest level since 2002."

The pipeline numbers are consistent with that. RMI said new HECM case numbers, which count applications, ran at about 3,000 a month from May through July, yet many of those applicants dropped out before closing. RMI did not give a reason. A loan applied for in May and quoted at that month's lower rates would have been worth less by the time it was ready to close in August or September, which is one plausible reason. It is not the only one, since appraisals, counseling and borrowers changing their minds also take loans out of the pipeline.

Who it actually hits

Retirees who own their homes and planned to use the equity. For someone counting on a reverse mortgage to pay off an existing mortgage, a smaller principal limit can mean the loan no longer covers the payoff, and the deal fails. Higher yields mean less cash from the same house.

The lenders. The market is concentrating. Finance of America, Mutual of Omaha Mortgage and Longbridge Financial together hold 59.1% of endorsements through the first three quarters, up from 55.9% a year earlier. September's top three were Finance of America with 408, Mutual of Omaha with 366 and Longbridge with 342. With 63 active lenders and falling volume, smaller lenders have less business to share.

Borrowers who are waiting. If Treasury yields come down, the principal limit offered on a HECM rises with them. That makes the product unusually sensitive to the bond market, which is in a sell-off. The jobs report on Friday did not stop the 10-year yield from rising, as we reported in our yield coverage.

Sources: HousingWire (Reverse Market Insight and New View Advisors data), HECMWorld, U.S. Treasury. The basis-point change is our arithmetic from Treasury data. This is market information, not investment advice.