HMBS April 2020 Part II: Float Remains in Equilibrium Just Above $54 Billion

May 10th, 2020

Outstanding HMBS rose by $185 million in April, as payoffs fell and issuance rose. Payoffs totaled approximately $800 million, down $50 million from last month. For several months, total outstanding HMBS has stayed at about $54 billion, in a state of equilibrium where new issuance and interest roll-up roughly equal payoffs.

In 2019, HMBS posted the lowest annual total in five years. Until last month, low interest rates and a higher lending limit boosted production significantly, while Mandatory Buyouts continue to fall. With the current Coronavirus pandemic crisis, financial markets are dislocated: will this upset the equilibrium at last?

We predicted continuing declines in Mandatory Buyouts, and April was case in point, with Buyout dollar volume again at its lowest level in nearly 5 years. “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 by issuers, or repaid by borrowers. Many HECM loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), but Peak Buyout is long gone.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $400 million, the lowest amount in nearly 5 years. This continues the downward trend from the buyout peak in the third quarter of 2018, 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 – April 2020

May 4th, 2020

HUD’s April 2020 HECM Endorsement Summary Report shows a total of just 1,601 endorsements, New View Advisors’ summary and analysis of which can be found here: NV Endorsement 2020_04. The impact of Coronavirus is undoubtedly the culprit of the slowdown. Lending activities have stalled meaningfully. The secondary market for the HMBS program has stabilized during the past month, but nobody is expecting the market to return to pre-pandemic execution any time soon. Back-end liquidity remains a concern for the industry. Time will tell whether April’s low endorsement count will be overshadowed by new opportunity to provide HECM loans to seniors, those most affected by Covid-19.

Geographically the slowdown is widespread. Notably, many major field offices on the west coast recorded endorsements less than half of counts from the previous month. For example, San Francisco and Seattle had 55 and 49 endorsements compared to 137 and 126 respectively in March. Salt Lake City and Denver saw drastic declines as well, with endorsements dropping to 56 and 132 in April, down from 109 and 247 in March. Numbers in southern locales are more mixed. Miami only had 29 endorsements compared to March’s 80, while Houston had 44 versus March’s 47.

Several top originators stand out in the decline of endorsements. Synergy One Lending, Open Mortgage, High Tech Lending, and Cherry Creek Mortgage all had zero endorsements for the month. Reverse Mortgage Funding and Liberty Home Equity Solution saw their endorsement count decline by 91% and 70% month-over-month, respectively.

The March Endorsement Snapshot Report is now available on HUD’s website. This report does not show notable changes in HECM endorsement volume because it is released with a one-month lag. Next month’s report will likely be more illuminating.

New View Advisors continues to offer its Who Buys What From Whom (WBWFW) report as part of this endorsement report subscription. The report compiles publicly available Ginnie Mae dollar volume data to show which HMBS issuers buy HECMs from which lenders. The WBWFW report includes:

1.  Top Originators – a ranking by original HECM UPB of all lenders over the last twelve months
2.  WBWFW – an alphabetical cross-reference between every lender and the HMBS issuer that securitizes its loans
3.  Top 100 Trends – a breakdown of loan sales by month, by Top-100 lender, by HMBS issuer.

Edited samples from the WBWFW report are at the end of our endorsement summary. These reports together provide accurate insight for sales and marketing teams to learn just who’s buying what from whom. The dataset is more complete and timely than what endorsement analysis alone can show.

HMBS April 2020: All Hail Tail Sales! April May be August Occasion or Slow March to Recovery

May 1st, 2020

HMBS issuance totaled $813 million in April 2020, with a recovery in tail pools leading the way. Beginning in March, the Coronavirus pandemic took its toll on the capital markets, reducing liquidity as lenders and investors pulled back: March’s meager tally of 77 pools was a six year low for number of HMBS pools issued. 86 pools were issued in April, more in line with past production. There were also three highly seasoned new issues totaling $74 million.

Reverse mortgage lenders weathered a long period of reduced new origination volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of FY2018. However, over the last year new production of HECMs and HMBS has slowly climbed back to its long-term average range of $500 – $600 million. With the past two months below that range, this resurgence is being tested.

April production of original new loan pools was about $470 million, compared to $455 million in March, $501 million in February, $550 million in January, $484 million in December 2019, and a mere $300 million in April 2019.

Last month’s tail pool issuances totaled $269 million, above the typical $200-$250 million range, reflecting pent-up supply from the March lows.

April issuance divided into 34 First-Participation or Original pools and 52 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 is essential for HMBS issuers to finance their monthly advances, such as borrower draws, FHA mortgage insurance premiums, etc.

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

New View Advisors Reverse Mortgage Draw Index March 2020: Dog Days Bite, but Don’t Bark

April 22nd, 2020

HMBS investors and issuers feared big draws in March. They worried that the widening crisis would panic reverse mortgage borrowers into a “run on the bank” mentality resulting in large draws on HECM Lines of Credit. This would increase the capital demands on HMBS issuers at a time when their own financing liquidity was decreasing. However, the latest GNMA data show that this was a dog that didn’t bark. Draw rates for March 2020 stayed well within historical averages, just as they did during the 2008-2009 Great Recession. Here are March 2020’s draw numbers, compared to past data, including January 2019 (our last published Draw Index) and March data from prior years:

In the table above, the index value is expressed as a monthly draw rate, equal to the amount of Line of Credit draws taken in any given month, divided by the Total Line of Credit Amount available at the beginning of that month. The index applies only to loans with a Line of Credit feature. Unseasoned Loans are defined as loans originated no more than 2 years ago, and Seasoned Loans as loans originated more than 2 years ago. Draws tend to be higher in the early years of a loan, then decline to a stable plateau as the loan matures. The draw amount for many HECM loans is restricted in the first year. As a result, the overall draw rate jumps materially in month 13 (a complete report showing draw rate by loan age month is available by subscription).

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

Financial Assessment Is Working (Part VI)

April 20th, 2020

Financial Assessment is still working. Now in its sixth year, FHA’s policy of requiring the financial assessment (FA) of borrowers’ ability to pay has cut tax and insurance (T&I) defaults by over 75% and serious defaults by over two-thirds. These results continue to validate the encouraging data we shared in previous years.

FHA’s objective for its Financial Assessment regulations was to reduce the persistent defaults, especially T&I defaults, plaguing the HECM program in 2009-2014. 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 make a financial assessment of borrowers’ ability to meet their obligations, including property taxes and home 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 remained a thorn in the side of the program until Mortgagee Letters 2014-21, 2014-22, and 2015-06 were released.

It’s been five years since Financial Assessment began, so we can measure with increasing confidence the effect of this policy by comparing default rates of loans originated before and after the FA rule was implemented.

With this in mind, we looked at a data set of more than 200,000 HECM loans, comparing loans originated in the immediate 57 month post-FA period from July 2015 through March 2020 to loans originated in the 57 month pre-FA period from July 2010 through March 2015. After July 2015, there were few (if any) loans originated under pre-FA guidelines. As Financial Assessment 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 T&I defaults in the post-FA period. As of March 31, 2015, the pre-FA data set had a T&I default rate of 4.7%, and an overall serious default rate of 6.8%. As of March 31, 2020, the comparable post-FA data set shows a T&I default rate of approximately 1.1%, and an overall serious default rate of 2.2%. 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.

Given these results, we continue to give Financial Assessment 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.” After nearly 5 years of experience, it is clear the HECM program has graduated to a sounder credit footing. The coming months will show how well this reformed HECM program weathers a likely serious economic downturn.

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

HMBS March 2020 Part II: Float Remains in Equilibrium Just Above $54 Billion

April 8th, 2020

Outstanding HMBS fell by $61 million in March, as payoffs rose and issuance fell. Payoffs totaled approximately $860 million, up $45 million from last month. Total outstanding HMBS has stayed at about $54 billion the last several months, in a state of equilibrium where new issuance and interest roll-up roughly equal payoffs.

In 2019, HMBS posted the lowest annual total in five years. Until last month, low interest rates and a higher lending limit boosted production significantly, while Mandatory Buyouts continue to fall. With the current Coronavirus pandemic, financial markets are dislocated. Will the crisis be the nudge that upsets this equilibrium?

We predicted continuing declines in Mandatory Buyouts, and March was a case in point, with Buyout dollar volume at its lowest level in nearly five years. “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 by the issuers or repaid by borrowers. Many HECM loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), but Peak Buyout is long gone.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled just $402 million, a low also last seen five years ago. This continues the downward trend from the buyout peak in the third quarter of 2018, 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.

2020Q1 HMBS Issuer League Tables – AAG Extends Its Lead

April 2nd, 2020

AAG increased its lead in 2020Q1 HMBS issuer rankings, with $586.6 million of issuance and 28% market share. FAR moved up two places to second, with $412.6 million issued and 20% market share. RMF stayed in third with $358.8 million issued and 17% market share. PHH Mortgage aka Liberty Reverse Mortgage moved up a notch to fourth, with $312.2 million and 15% market share, and Longbridge slipped three places back to fifth with $228.2 million of issuance and 21% share. Regardless of order, these same five issuers accounted for almost 91% of all issuance this quarter, matching their Top-5 concentration high at year-end 2018. There were 13 HMBS issuers active during the quarter.

2020Q1 saw $2.09 billion of HMBS issued, down again from 2019Q4’s $2.28 billion, and 2019Q3’s $2.33 billion. With impact from the Coronavirus pandemic unknown, Q1 production is a meaningless metric to project annual volume. 2019 full year volume landed at $8.26 billion, off 14% from full year 2018. Total HMBS issuance in 2018 was $9.58 billion.

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

HECM Endorsement Analytics – March 2020

April 2nd, 2020

HUD’s March 2020 HECM Endorsement Summary Report shows a total of 2,913 endorsements, 14% lower than last month’s 3,386, despite rates heading still lower again. Our summary report can be found here: NV Endorsement 2020_03.

Among the big movers, AAG endorsed 799 loans, up 16% from last month’s 691 loans. Liberty Reverse Mortgage endorsed 235 loans, less than half of last month’s 582 unit count. Mutual of Omaha Mortgage’s endorsement count also slipped, from 177 to 135 units month over month.

HUD’s February Endorsement Snapshot Report is now available on its website. Liberty sponsored 595 loans originated by another lender. FAR, RMF, and AGG followed behind with 399, 236, and 137 loans, respectively. Fairway sold 150 loans to another sponsor, more any other month during the past 12 months. Ennkar continued to be a strong seller again this month with 68 loans.

Of course, the current reports barely reflect any impact the Coronavirus pandemic will have on reverse mortgage originations starting in mid-March. Lending activities have stalled, and the secondary market has pulled back for HMBS, HREMIC, and related transactions. Expect materially weaker prints in the coming months.

New View Advisors continues to offer its Who Buys What From Whom (WBWFW) report as part of this endorsement report subscription. The report compiles publicly available Ginnie Mae data to show which HMBS issuers buy HECMs from which lenders. The WBWFW spreadsheet includes:

  • Top Originators – a ranking by original HECM UPB of all lenders over the last twelve months
  • WBWFW – an alphabetical cross-reference between every lender and the HMBS issuer that securitizes its loans
  • Top 100 Trends – a breakdown of loan sales by month, by Top-100 lender, by HMBS issuer.

Edited samples from this month’s WBWFW report are at the end of our endorsement writeup. These reports together provide accurate insight for sales and marketing teams to learn just who’s buying what from whom. The dataset is more complete and timely than what endorsement analysis alone can show.

HMBS March 2020: Issuance Tails Off

April 1st, 2020

HMBS issuance totaled $625 million in March 2020, with a notable decline in tail pools accounting for much of the reduced volume. As the month wore on, the Coronavirus pandemic increasingly took its toll on the capital markets, reducing liquidity as lenders and investors pulled back. Only 77 pools were issued in March, nearly a six year low for number of HMBS pools issued. These included about $455 million of new unseasoned HECM first participation pools, reversing a strong upward trend in production. There were no highly seasoned new issues. Still, March 2020 beat March 2019, when HMBS issuers sold 88 pools totaling $558 million.

Reverse mortgage lenders weathered a long period of reduced new origination volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of FY2018. However, over the last year new production of HECMs and HMBS has slowly climbed back to its long-term average range of $500 – $600 million. The fallout from the pandemic will sorely test this resurgence.

The HMBS market totaled about $8.3 billion for calendar year 2019, down from $9.6 billion in 2018 and $10.5 billion in 2017. However, securitization of private reverse mortgages is a much bigger factor now. As a result, we estimate that the total issuance of reverse mortgage securities backed by new collateral in 2019 was about the same as 2018. This may not be the case in 2020, with at least two major private reverse mortgage programs suspended for the time being.

March’s production of original new loan pools was about $455 million, compared to $501 million in February, $550 million in January, $484 million in December, $506 million in November, $426 million in October, $393 million in September, $390 million in August, $321 million in July. It was barely $277 million one year ago in March 2019.

Last month’s tail pool issuances totaled $170 million, nearly a five year low, and well below the typical $200-$250 million range.

March issuance divided into 31 First-Participation or Original pools and 46 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 is essential for HMBS issuers to finance their monthly advances, such as borrower draws, FHA mortgage insurance premiums, etc.

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

HMBS February 2020 Part II: HMBS Float Remains in Equilibrium Just Above $54 Billion

March 10th, 2020

Outstanding HMBS rose by $72 million in February, as lower payoffs were once again balanced by a strong issuance month. Payoffs totaled approximately $800 million, down about $100 million from last month. Total outstanding HMBS remains at $54.1 billion, an equilibrium in which new issuance and interest roll-up roughly equal payoffs.

In 2019, HMBS posted the lowest annual total in five years. However, low interest rates and now a higher lending limit have boosted production significantly, while Mandatory Buyouts continue to fall. How long can this equilibrium last?

We predicted continuing declines in Mandatory Buyouts, and February was a case in point, with Buyout dollar volume at its lowest level in nearly 5 years. “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 by the issuers 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 is long gone.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled just $421 million, the lowest amount in nearly 4 years. This continues the downward trend from the buyout peak in the third quarter of 2018, 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.