HMBS July 2019 Part II: HMBS Float Rises

August 9th, 2019

Outstanding HMBS rose by nearly $300 million in July, helped by a large new pool backed by highly seasoned Home Equity Conversion Mortgages (“HECMs”). Payoffs once again totaled just under $1 billion. Total outstanding HMBS rose to just under $54.5 billion. Without that one pool, HMBS float would have fallen below $54 billion for the first time in over 3 years.

Total HMBS float will likely finally fall further given current trends. HMBS issuance in the first half of 2019 was the lowest half of issuance in five years.

We also predict continuing declines in Mandatory Buyouts in the foreseeable future. “Peak Buyout” was 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. From now on, billion-dollar-plus payoff months will be the exception rather than the rule. Many HECM loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), but Peak Buyout appears to have ended.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases accounted for $610 million, or about 61%, of the payoffs last month. This continues a gradual downward trend from the buyout peak in last year’s third quarter, which averaged over $750 million in Mandatory Purchases per month.

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

HECM Endorsement Analytics – July 2019

August 2nd, 2019

HUD released its July 2019 HECM Endorsement Summary Reports, our summary of which can be found here: NV Endorsement Report 2019_07.  HUD’s report shows a total of 2,754 endorsements, 8% higher than June’s 2,546 units. However, the modest increase is more likely a reflection of 2 additional business days in July rather than any fundamental change in the market. Based on day count, volume is down month over month, from approximately 127 closings per day to 125. Day count is a common analytic in the forward mortgage market. Other than the fluctuation observed at year-end due to the government shutdown, endorsement volume for the last 12 months has shown disappointing stability, and that’s before factoring in interest rates falling almost 1.5% since late 2016.

It was another active month for Fairway as a wholesale originator that sells its loans to other sponsors. This month Fairway originated 98 such loans endorsed by HUD. After falling behind Liberty Home Equity Solution for two months, Finance of America Reverse once again led the companies that sponsored loans originated by another lender, with 340 loans. Liberty Home Equity Solution sponsored 143 such loans, and it was enough to drop Liberty to second place based on annual totals.

As a follow up to last month’s analysis on county-level market penetration, this month we look at the penetration rates of the counties with the largest 60+ populations (the penetration rate is based on number of endorsements from the last 12 months as a percentage of the older-than-60 population).  As a reminder, the top 10 counties have penetration rates ranging from 0.17% to 0.50%. In comparison, many other counties with large number of senior citizens appear to be significantly underserved by the HECM market. The reason can be multifold. For example, New York County’s diminutive penetration level is likely caused by limitations on HECM lending backed by condo and coop properties, while the low rates in other counties likely result from regulatory and legal hurdles, and challenging local social economical dynamics such as housing prices, wealth/poverty levels, etc.

HMBS July 2019: It’s the Time of the Seasoned; Live Well’s Not There

August 1st, 2019

HMBS issuance rose in July 2019 to over $1 billion, helped by a large highly seasoned pool. 83 pools were issued in July, including about $321 million of new unseasoned HECM first participation pools, the third highest monthly total for new production this year. Half of this month’s total issuance, the largest in 15 months, was from one large highly seasoned CMT pool.

Reverse mortgage lenders face a new era of reduced volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of Fiscal Year 2018. For the entire year of 2018, HMBS issuance totaled about $9.6 billion, compared to $10.5 billion in 2017. Even with this month’s issuance, the HMBS market will be hard pressed to equal last year’s totals, which included some HMBS issuance backed by new HECM loans originated at higher PLFs. HMBS issuers sold 100 pools totaling $545 million in July 2018.

Live Well is no longer the issuer of record for any Ginnie Mae HMBS pools. According to the Ginnie Mae data, RMF acquired the rights to the Live Well pools issued from December 2018 through June 2019. These pools totaled just under $200 million in unpaid balance as of last month. Late last year, RMF acquired over $4 billion in issuer rights, consisting of all outstanding HMBS pools issued by Live Well through November 2018. Pool BN4497 has the distinction of being the last pool issued by Live Well.

July’s production of original new loan pools was about $321 million, compared to $331 million in June, $325 million in May, $300 million in April, $277 million in March, $274 in February, and $304 million in January. Last month’s tail pool issuances totaled $222 million, within the range of recent tail issuance. With rates trending lower, we may be seeing the benefit of lower interest rates helping new origination volume.

July 2019 issuance divided into 28 First-Participation or Original pools and 55 tail pools, exactly the same totals as June. 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. Tail HMBS issuance can generate profits for years, helping HMBS issuers during challenging times.

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

HMBS June 2019 Part II: HMBS Float Resumes Shrinkage

July 11th, 2019

Outstanding HMBS fell by nearly $200 million in June, as low issuance, high payoffs, and an absence of highly seasoned issues took their toll. Payoffs once again totaled just under $1 billion. Total outstanding HMBS fell to just over $54.2 billion, a three-year low. HMBS float is now $2.2 billion below its peak a year ago.

Total HMBS float will likely fall further given current trends. As we noted earlier this week, HMBS issuance in the first half of 2019 was the lowest half-year of issuance in five years.

We predict continuing declines in Mandatory Buyouts in the foreseeable future. “Peak Buyout” was 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. From now on, billion-dollar-plus payoff months will be the exception rather than the rule. Many HECM loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), but Peak Buyout appears to have ended.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases accounted for $600 million, or about 64%, of the payoffs last month. This tracks May’s numbers very closely and continues a gradual downward trend from the buyout peak in last year’s third quarter, which averaged over $750 million in Mandatory Purchases per month.

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

HECM Endorsement Analytics – June 2019

July 2nd, 2019

HUD recently released its June 2019 HECM Endorsement Summary Reports, our summary of which can be found here: NV Endorsement Report 2019_06.  The report shows a total of 2,544 endorsements, 6% lower than May’s 2,697 units, and as we reported last month, still 20% lower year-over-year.

There were no material variations in regional origination from May. The Santa Ana Center continues to account for approximately 40% of total volume, and Los Angeles was Santa Ana’s most active field office in June with 175 endorsements.

Fairway Independent Mortgage remains the most active wholesale originator that sells its loans to other sponsors. This month Fairway is the originator of 70 such loans endorsed by HUD. Liberty Home Equity Solution sponsored the most loans originated by another lender for the second straight month, with 236 endorsements. Assuming this trajectory continues, Liberty will eclipse Reverse Mortgage Funding next month for sole position of second place, behind only Finance of America Reverse. June is the first month Liberty sponsored more loans than FAR.

HECM loan rates headed lower again last month as 10-year LIBOR reached 1.95%, its lowest level since November 2016. 10-year LIBOR is the benchmark used to calculate the Expected Rate for LIBOR based adjustable rate HECMs.

This month we take a closer look at county-level market penetration. For the analysis we looked at the number of endorsements from the last 12 months as a percentage of the older-than-60 population. Despite many California counties having the most HECM endorsements by unit count, none ranked in the top ten in terms of market penetration. Of the counties where at least 100 HECM loans were endorsed in the past year, seven counties from Colorado made the top ten list, and Washington County Utah ranked highest at 0.5%.

2019Q2 HMBS Issuer League Tables – Very Little Change

July 1st, 2019

AAG retains its lead HMBS issuer slot for the second quarter of 2019, with $847.4 million of issuance for a 23.3% market share. RMF stayed in second, with $651.7 million issued and 17.9% market share, and FAR held third with $553.8 million issued and 15.19% market share. Longbridge jumped two spots to #4 with $552.2 million and 15.15% market share, and PHH Mortgage Corp, fka Ocwen Loan Servicing, fka Liberty Home Equity Solutions, placed fifth with $425.1 million for a 11.7% market share. These five issuers accounted for more than 83% of all issuance, up 4% from 2019Q1’s 79%. There were 14 active HMBS issuers during the quarter. One-time issuer Synergy One Lending did not issue securities in the quarter.

2019Q2 saw $1.98 billion of HMBS issued, up from 2019Q1’s $1.67 billion, but for the half, industry volume is off 36% from a year ago. Total HMBS issuance in the first six months of 2018 was $5.71 billion. Even with highly seasoned pool issuance, expect lower HMBS issuance volume going forward.

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

HMBS June 2019: Is First Half Glass Empty or Will Second Half Be Glass Full

July 1st, 2019

HMBS issuance fell in June 2019 to just over $561 million, ending the slowest half-year of issuance in five years, though yet another uptick in new production gave hope for the second half. No highly seasoned pools were issued. 83 pools were issued in June, including about $331 million of new unseasoned HECM first participation pools. HMBS float will almost certainly fall if June’s payoffs are in line with recent months.

Reverse mortgage lenders face a new era of reduced volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of Fiscal Year 2018. For the entire year of 2018, HMBS issuance totaled about $9.6 billion, compared to $10.5 billion in 2017. With total issuance at only $3.6 billion at the half-year mark, the HMBS market will be hard pressed to equal last year’s totals, which included some HMBS issuance backed by new HECM loans originated at higher PLFs. For comparison, HMBS issuers sold 116 pools totaling $964 million in June 2018.

Live Well Financial issued 1 HMBS pool in June totaling about $1.3 million. LiveWell recently ceased originating new loans.

June’s production of original new loan pools was about $331 million, compared to $325 million in May, $300 million in April, $277 million in March, $274 in February, and $304 million in January. Last month’s tail pool issuances totaled $230 million, within the range of recent tail issuance. After several months of Groundhog Day mode, with very similar volume statistics, we may be seeing the benefit of lower interest rates helping new origination volume.

June 2019 issuance divided into 28 First-Participation or Original pools and 55 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. Tail HMBS issuance can generate profits for years, helping HMBS issuers during challenging times.

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

Financial Assessment Is Working (Part V)

June 27th, 2019

Financial Assessment is still working. Now in its fifth year, FHA’s new policy of requiring the financial assessment (“FA”) of the borrower’s ability to pay has cut tax and insurance default by over three quarters and serious defaults by over two-thirds. These results continue to validate the encouraging data we shared in past analyses.

FHA’s objective for the new Financial Assessment regulations was to reduce the persistent defaults, especially Tax and Insurance defaults, plaguing the HECM program. As FHA put it, “… an increasing number of tax and hazard insurance defaults by mortgagors led FHA to establish … a requirement for a Financial Assessment of a potential mortgagor’s financial capacity and willingness to comply with mortgage provisions.” Financial Assessment requirements became effective for HECMs with case numbers issued on or after April 27, 2015. Since then, HECM lenders must make a financial assessment of the borrower’s ability to meet their obligations, including property taxes and home insurance. Tax and Insurance (T&I) and other defaults can lead to foreclosure and result in significant losses to FHA, HMBS issuers and other HECM investors. Defaults rose steadily during the financial crisis and have remained a thorn in the side of the program.

It’s been over four years since Financial Assessment began, so we should be able to measure the effect of this policy by comparing the default rates of loans originated before and after the FA rule was implemented.

With this in mind, New View Advisors looked at a data set of just over 200,000 HECM loans, comparing loans originated in the immediate 45 month post-FA period from July 2015 through March 2019 to loans originated in the 45 month pre-FA period from July 2011 through March 2015. After July 2015, there were few (if any) loans originated under the pre-FA guidelines. As the guidelines took effect in April 2015, the second quarter of 2015 included a mix of FA and pre-FA loans.

The data show a very strong reduction in Tax and Insurance Defaults in the post-FA period. After 45 months, the pre-FA data set shows a T&I default rate of 3.6%, and an overall serious default rate of 5.2%. By contrast, the post-FA data set shows a T&I default rate of approximately 0.7%, and an overall serious default rate of 1.5%. For the purpose of this analysis, we define serious defaults as T&I defaults plus foreclosures plus other “Called Due” status loans.

Over the past few years, FHA has taken a number of steps to reduce defaults in its HECM program. These include Mortgagee Letter 2013-27, which limits in certain cases the amount that can be lent in the first 12 months. Also, a series of Principal Limit Factor (“PLF”) reductions has reduced the amount lent even when the loan is fully drawn. These changes have also helped, although the majority of serious early defaults are Tax and Insurance defaults.

Given these results, we once again give the Financial Assessment concept high marks for reducing defaults. Previously, we referred to these results as a “mid-term grade that needs to be tested further as the post-FA portfolio ages.” At this point, four years constitutes at least one full semester in a HECM loan’s life-cycle, and we grade Financial Assessment’s performance as a solid “A.”

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

HMBS May 2019 Part II: Seasoned Issuance Props up Float

June 11th, 2019

Outstanding HMBS rose slightly in May, avoiding further decline thanks to some highly seasoned new issuance. Despite just under $1 billion in payoffs, total outstanding HMBS edged up to just over $54.4 billion. This is down over $2 billion from its peak a year ago.

Total HMBS float will likely finally fall further given current trends. As we noted earlier this week, HMBS issuance was just over $855 million in May, including over $282 million from three highly seasoned new issues.

We predict continuing declines in Mandatory Buyouts in the foreseeable future. “Peak Buyout” was 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. Although last month came close, billion-dollar-plus payoff months will be the exception rather than the rule. Many HECM loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), but Peak Buyout appears to have ended.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases accounted for $599 million, or about 62%, of the payoffs last month. This is the first month since December 2017 where mandatory purchases have not exceeded $600 million, and continues a gradual downward trend from the buyout peak in last year’s third quarter, which averaged over $750 million in Mandatory Purchases per month.

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

HECM Endorsement Analytics – May 2019

June 3rd, 2019

HUD released its May 2019 HECM Endorsement Summary Reports today, our summary of which can be found here: NVA Endorsement Report 2019_05. There were a total of 2,697 endorsements, in line with average monthly volume since the beginning of 2019. However, year over year, endorsements are running 20% behind last year’s totals.

Regionally, the Santa Ana Center remains the number one office, with significant contributions from the Los Angeles, San Francisco and Santa Ana field offices. The Denver office had the second highest endorsement count in May outside of the Santa Ana Center.

Of the HECMs endorsed in May, AAG originated nearly one third, with 853 endorsements. The #2 lender ORM originated 238 units, less than one third of AAG’s tally. There are just four other originators with an endorsement count market share of 5% or more.

Fairway Independent Mortgage has been the most active wholesale originator, notching 89 HECMs endorsed by HUD. Over the past 12 months, FAR has been the most active sponsor of HECMs originated by another lender, however Liberty Home Equity Solutions had the highest sponsor count in May with 328 HECMs endorsed.

With the strongest treasury rally in ten years, HECM loan rates are heading lower. The 10-year LIBOR benchmark is at its lowest point since September 2017. Yet, HECM refinance activity remains low. Given the lower PLFs enacted as of FY 2018, it seems unlikely we will see another refinance boom like the one experienced in 2017.

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