October 2018 HMBS: Scary Seasonal Mask Hides Market Decline

November 9th, 2018

HMBS float grew in October thanks to a large issuance of highly seasoned collateral. Despite over $1 billion in payoffs, HMBS ended the month at $55.5 billion, up from about $55.3 billion at the end of September. HMBS issuance was also just over $1 billion, $473 million of which accounted for by three large highly seasoned issues. HMBS float has been range-bound between $55 billion and $57 billion, but could fall below that soon as payoffs usually outweigh issuance of new pools and negative amortization of existing pools.

Production of original new loan pools was about $325 million, down from September’s $360 million and August’s $344 million totals. Last month’s tail pool issuances totaled $220 million, within the range of recent tail issuance. In October 2017, HMBS issuers sold 107 pools totaling $913 million, of which $615 million was original new loan pools.

October 2018 issuance divided into 43 original pools and 56 tail pools. Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participations. Tails are not from new loans, but they do represent new amounts lent. As we noted last month, tail HMBS issuance can generate profits for years, helping HMBS issuers in challenging periods.

We predicted earlier this year “we may be at Peak Buyout, and see a relative decline in Mandatory Buyouts in the near future.“ Peak Buyout is an echo of the peak issuance from 2009 through the first half of 2013. Much of this production has already been repurchased or repaid by borrowers. Payoffs have exceeded $1 billion per month for 12 of the last 15 months as many loans reached their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”).

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases accounted for $632 million, or about 65%, of the payoffs last month. This continues a downward trend from August’s record of $869 million.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

September 2018 HMBS Part II: Market Volume Numbers Fall in Autumn

October 15th, 2018

HMBS float shrank again despite a significant decline in payoffs. Just under $1 billion in payoffs reduced HMBS float to $55.3 billion, down from about $55.5 billion at the end of August. As we noted last week, HMBS issuance rose slightly in September 2018 to just over $587 million, a small increase over August, but much less than payoffs. HMBS float has been range-bound between $55 billion and $57 billion, but could slip below that soon as payoffs continue to outweigh new issuance.

We predicted earlier the industry “may be at Peak Buyout and see a relative decline in Mandatory Buyouts in the near future.”  Last month’s overall payoffs and Mandatory Purchases were at seven month lows. Peak Buyout is an echo of the peak issuance from 2009 through the first half of 2013. Much of this production has already been repurchased or repaid by borrowers. Payoffs nonetheless have exceeded $1 billion per month for 11 of the last 14 months, as many loans reached their assignment threshold, equal to 98% of their Maximum Claim Amount (“MCA”).

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases accounted for $653 million, or about 69%, of the payoffs in September. This is down sharply from last month’s record of $869 million.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

2018 First Nine Months HMBS Issuer Rankings –Volume Slows

October 4th, 2018

RMF keeps its pole position after the first nine months of 2018, issuing $2.52 billion of HMBS securities for a 33.9% market share, a drop from its commanding 40% Q2 market share, but still well ahead of second place AAG. AAG issued $437 million of HMBS in Q3, 73% more than RMF’s $253 million, for an overall 20% market share. RMF issued no seasoned pools in the quarter. FAR stays in third with $1.06 billion issued and 14.3% market share. Ocwen Loan Servicing and Live Well Financial again round out the top five issuers. Ocwen issued $728.7 million for a 9.8% market share, and Live Well was fifth with $522.1 million issued for a 7% market share. The top five issuers accounted for 85% of all issuance, down 1% from last quarter. There were 14 active HMBS issuers last quarter – only Bank of America did not issue HMBS in Q3.

The first nine months of 2018 saw $7.43 billion of HMBS issued, with Q3 issuance at $1.71 billion, off by more than $1 billion from either the first or second quarters. Unless highly seasoned pool issuance returns, expect lower volume for the foreseeable future. As we have noted previously, tail issuance will provide some volume (and profit) stability to HMBS issuers to offset this slowdown. HMBS issuance volume for the first nine months of 2017 totaled $7.29 billion.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

September 2018 HMBS: Try to Remember That Time in September (of Last Year)

October 3rd, 2018

HMBS issuance rose in September 2018 to just over $587 million, a small increase over August, but still one of the lowest issuance months in recent years. No highly seasoned pools were issued. In all, 104 pools were issued in September. When all the data are in, we expect another $1 billion plus in payoffs to shrink HMBS float again.

Reverse mortgage lenders face a new era of reduced volume, primarily due to the lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Mortgages (“HECMs”) effective last year. Rising interest rates will not help either, as they generally require lower PLFs.

Production of original new loan pools was about $360 million, up from August’s $344 million, but these small, short-term upticks in HMBS production are hardly proof of a recovery. Last month’s tail pool issuances totaled $213 million, within the range of recent tail issuance. By comparison, HMBS issuers sold 114 pools totaling $879 million in September 2017.

September 2018 issuance divided into 45 original pools and 59 tail pools. Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participations. Tails are not from new loans, but they do represent new amounts lent. As we noted last month, tail HMBS issuance can generate profits for years, helping HMBS issuers in challenging periods.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

August 2018 HMBS: Cat Has Eight Lives Left

September 13th, 2018

HMBS issuance rose slightly in August 2018 to just over $579 million, a small increase over July, which was the lowest issuance month in nearly four years. No highly seasoned pools were issued. In all, 110 pools were issued in August. Over $1.2 billion in payoffs shrank HMBS float by a record $500 million. Last month we noted that since February 2017 HMBS float has been range-bound between $55 billion and $57 billion but could fall below that range with the continued payoff deluge and issuance drought. That could happen as early as next month, with outstanding HMBS now below $55.5 billion.

Payoffs have exceed $1 billion per month for 11 of the last 13 months, a trend likely to continue as many loans reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”). Meanwhile, reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Mortgages (“HECMs”) effective this fiscal year. Rising interest rates will not help either, as they generally require lower PLFs.

Production of original new loan pools was about $344 million, up from July’s $318 million, but these small, short-term upticks in HMBS production or HECM endorsements are hardly proof of a recovery or even a dead cat bounce. They are more like the window awnings that break the fall of a cat from a high roof. August production was also down from June’s $353 million, May’s $367 million, April’s $401 million, and down sharply from $604 million in February, $657 million in January and $747 million in December 2017. HMBS issuance topped $916 million in August 2017. Last month’s tail pool issuances totaled $235 million, within the range of recent tail issuance. We shall see if the cat still has eight lives left or merely bounces eight times when it hits the ground.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases accounted for $869 million, or about 70%, of the payoffs in August. This shatters the record $791 million set last November.

August issuance divided into 51 original pools and 59 tail pools. Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participations. Tails are not from new loans, but they do represent new amounts lent. As we noted last month, Tail HMBS issuance can generate profits for years, helping HMBS issuers in challenging periods.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

July 2018: HMBS Supply Fades Away With Summer

August 11th, 2018

HMBS issuance fell sharply in July 2018 to just over $542 million, the lowest issuance month in nearly four years. No highly seasoned pools were issued. In all, 98 pools were issued in July. Over $1 billion in payoffs shrank HMBS float by a record $355 million. Since February 2017, HMBS float has been range-bound between $55 billion and $57 billion, but could fall below that with the continued payoff deluge and issuance drought.

Payoffs have exceeded $1 billion per month for 10 of the last 12 months, a trend likely to continue as many loans reach their buyout threshold, equal to 98% of their Maximum Claim Amount. Meanwhile, reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Mortgages (“HECMs”) effective this fiscal year. Rising interest rates will not help either, as they generally require lower PLFs, although many HECM lenders have reduced interest rates and margins to maintain PLFs.

Production of original new loan pools was just under $318 million, down from June’s $353 million, May’s $367 million, April’s $401 million, and down sharply from $604 million in February, $657 million in January, and $747 million in December 2017. HMBS issuance topped $847 million in July 2017. Last month’s tail pool issuances totaled $225 million, within the range of recent tail issuance.

July issuance saw 44 original pools and 54 tail pools. Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participations. Tails are not from new loans, but they do represent new amounts lent. As we noted last month, Tail HMBS issuance can generate profits for years, helping HMBS issuers in challenging periods.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

HMBS June 2018 Part II: Supply Grows Slowly, Despite Large Seasoned Issuance

July 11th, 2018

HMBS supply rose in June by a scant $128 million, despite a large issuance of highly seasoned new pools.

We noted in previous blogs that reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Mortgages (“HECMs”) effective this fiscal year. The total for new pools backed by new loans in June was a measly $353 million; overall new supply was $964 million, and tail issuance remained strong. Without the additional $356 million in highly seasoned new pools, supply would have shrunk sharply, as was the case in May.

We estimate that negative amortization of outstanding pools totaled $204 million. Total estimated payoffs topped $1 billion for the fourth month in a row. Most of the payoffs were once again due to mandatory buyouts, in which the issuer buys out HMBS participations backed by HECM loans whose balances have reached 98% of their Maximum Claim Amount. Our friends at Recursion show about $672 million of the payoffs resulting from Mandatory Buyouts, the fourth highest total ever. This wave of buyouts is an echo of the very large issuance from 2009 through the first half of 2013, especially pools backed by fixed rate HECMs with higher interest rates and higher initial PLFs. The second and third quarter of 2018 may prove to be “Peak Buyout,” followed by a decline in Mandatory Buyouts in the fourth quarter and beyond.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

HREMIC Issuance 2018Q2: Remarkable Resilience

July 9th, 2018

HREMIC issuance for the first half of 2018 was $4.91 billion, on pace to nearly match 2016’s record $9.9 billion of securities issued. However, this volume trend is unlikely to continue based on the slowdown in HMBS. There were 4 transactions for $1.95 billion issued in the second quarter, underwritten by the same two sponsors from Q1, Nomura and Citigroup. For the first half of 2018, Nomura issued $2.6 billion of securities and Citigroup issued $2.4 billion.

HREMIC collateral consists of HMBS, which are Ginnie Mae guaranteed pass-through securities. HMBS are backed by pools of participations of HECMs, which are FHA-insured reverse mortgages. This double layer of government guarantee, combined with the relatively high coupon and favorable prepayment patterns of the underlying loans, results in very favorable execution, even when compared to other Ginnie Mae “forward mortgage” securities.

New View Advisors compiled these rankings from publicly available Ginnie Mae data.

Seasoned HMBS Boon in June: Issuers Croon Old Tune to Avoid Issuance Swoon

July 3rd, 2018

After a tepid May, HMBS issuance rose sharply in June 2018 to over $964 million with the help of more than $356 million in highly seasoned new issuance, exceeding that of new production. In all, 116 pools were issued in June.

As we noted in previous blogs, reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Mortgages (“HECMs”) effective this fiscal year. Rising interest rates will not help either as they generally require lower PLFs, although many HECM lenders have reduced interest rates and margins to maintain PLFs.

Production of original new loan pools was just under $353 million, down from May’s $367 million, April’s $401 million, and down sharply from $604 million in February, $657 million in January and $747 million in December 2017. HMBS issuance topped $779 million in June 2017. For the foreseeable future, this low level of production looks like the new normal. Last month’s tail pool issuance was a healthy $255 million, on the high end of recent tail issuance.

June issuance saw 54 original pools and 62 tail pools. Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participations. Tails are not from new loans, but they do represent new amounts lent. As we noted last month, tail HMBS issuance can generate profits for years, helping HMBS issuers in challenging periods such as now.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

2018 First Half HMBS Issuer Rankings – Seasoned Collateral Rules

July 2nd, 2018

RMF remains atop the leaderboard after the first six months of 2018, issuing $2.26 billion of HMBS securities for a 39.6% market share, more than double #2 AAG’s $1.05 billion and 18.5% market share. RMF’s totals include highly seasoned pools, issued throughout the half. FAR stays in third with $767 million issued and 13.4% market share. Ocwen Loan Servicing and Live Well Financial again round out the top five issuers. Ocwen issued $500 million for an 8.7% market share, and Live Well was fifth with $357 million issued for a 6.3% market share. The top five issuers accounted for 86% of all issuance, the same as last quarter. There were 15 active HMBS issuers in the half.

The first half of 2018 saw $5.71 billion of HMBS issued, on track to beat 2010’s record year of $10.7 billion, thanks to the previously mentioned highly seasoned HMBS issuance. But, unless that becomes the norm, expect lower volume for the second half of 2018 due to the new PLF curves in effect since October. As we have noted previously, tail issuance will provide some profit stability to HMBS issuers to offset this slowdown. HMBS issuance volume for the first half of 2017 totaled $4.65 billion.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.