HMBS payoffs remained low in February, as Mandatory Purchases continued to rise and natural payoffs remained at less than a 7% per annum rate. February payoffs totaled about $800 million, the fourth lowest payoff amount in nearly 6 years. Outstanding HMBS fell slightly to a record $59.8 billion due to the drop in issuance.

Higher interest rates finally caught up with the HMBS market in 2022, driving down Principal Limit Factors (initial loan-to-value ratios or “PLFs”) sharply. Big trouble came in the fourth quarter. In October, the trend of declining home prices became more clear and widespread. In November, Reverse Mortgage Funding (“RMF”), holder of the largest HMBS servicing portfolio, declared bankruptcy. In December, AAG, the top HECM originator, agreed to sell its assets to Finance of America Reverse, taking another major HMBS issuer out of the picture.

Also in December, Ginnie Mae took over RMF’s HMBS portfolio. In Ginnie Mae’s recent data release, “Ginnie Mae – Reverse Mortgage Funding 42” is now shown as the issuer of record for the 4,052 former RMF pools. About $300 million of Issuer 42’s portfolio paid off in February. “Issuer 42” HMBS accounts for just under $21 billion, or about 34% of all outstanding HMBS.

Issuer 42 is not issuing any tail pools. After nearly three months, we estimate Issuer 42 has an approximate $300 million uncertificated position, that is, the excess of their HECM balance over their HMBS balance. Is there an “Issuer 43” waiting in the wings to take over this portfolio? Or will it be a big melting iceberg, like Fannie Mae’s HECM portfolio, which has dwindled from $75 billion to approximately $5 billion today, more than a decade after Fannie bought her last HECM. Only time will tell.

The lending limit/MCA was raised to $1,089,300 in 2023; it remains to be seen if this will slow the steady decline in industry volume. Higher interest rates and slowing home price appreciation will challenge the HMBS market for the foreseeable future.

When a HECM loan balance reaches 98% of its MCA, the HMBS issuer is required to buy the loans out of the HMBS pool, and then may assign the loan to HUD if the loan is not in default. This is effectively a prepayment event for the HMBS investor, even though the underlying HECM loan remains outstanding. According to our friends at Recursion, 58% of HMBS payoffs last month were due to Mandatory Purchase, the highest percentage in 3 ½ years. Last month’s 98% MCA Mandatory Purchases totaled $450 million, the highest dollar total in over 3 years.

Including the Mandatory Purchases, HMBS paid off at a 15.2% annual rate in February, a slight uptick from January, which posted the slowest one-month rate since February 2016. Exclusive of Mandatory Purchases, the rate of HMBS payoffs has fallen significantly. HMBS payoffs resulting from underlying HECM loan payoffs, including payoffs due to mortality and refinncing, is less than 7%, a seven-year low and about one-third the rate of a year ago.

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

In February, the HMBS new issue market saw its shadow on Groundhog Day, received no Valentines, and celebrated Millard Fillmore on President’s Day. HECM Mortgage-Backed Securities (“HMBS”) issuance fell in February to $507 million, falling for the tenth straight month. Only 58 pools were issued. Adjusting for day count, it was a repeat of the ten-year lows of January. This HMBS Winter of Discontent will be a long one.

February’s original (first participation) production fell sharply to $322 million, down from $347 million in January, $448 million in December, $516 million in November and less than one-fourth of April 2022’s record $1.4 billion in new issuance. Ginnie Mae/RMF (aka “Issuer 42”) issued no HMBS pools in February. While HMBS issuance set a new record in 2022, with nearly $14 billion issued, in the current market environment, HMBS issuers will not come anywhere near those numbers.

The 58 pools issued in February consisted of 22 first-participation or original pools and 36 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. With Issuer 42 abstaining from issuance, last month’s tail pool issuances totaled $185 million, well below the typical range.

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

HMBS payoffs fell again in January, as the refinancing retreat continues. January payoffs totaled about $756 million, the lowest payoff amount in nearly 6 years and the lowest payoff rate in 7 years. Outstanding HMBS rose to a record $59.9 billion due to the drop in payoffs.

Higher interest rates finally caught up with the HMBS market in 2022, driving down Principal Limit Factors (initial loan-to-value ratios or “PLFs”) sharply. Big trouble came in the fourth quarter. In October, the trend of declining home prices became more clear and widespread. In November, Reverse Mortgage Funding, holder of the largest HMBS servicing portfolio, declared bankruptcy. In December, AAG, the top HECM originator, agreed to sell its assets to Finance of America Reverse, taking another major HMBS issuer out of the picture.

Also in December, Ginnie Mae took over RMF’s HMBS portfolio. In Ginnie Mae’s recent data release, “Ginnie Mae – Reverse Mortgage Funding 42” is now shown as the issuer of record for the 4,053 former RMF pools. About $290 million of Issuer 42’s portfolio paid off in January. “Issuer 42” HMBS accounts for just under $21 billion, or about 35% of all outstanding HMBS.

The 10-year treasury fell sharply in recent weeks and the lending limit/MCA was raised to $1,089,300 in 2023; it remains to be seen if this will slow the steady decline in industry volume.

When a HECM loan balance reaches 98% of its MCA, the HMBS issuer is required to buy the loans out of the HMBS pool, and then may assign the loan to HUD if the loan is not in default. This is effectively a prepayment event for the HMBS investor, even though the underlying HECM loan remains outstanding. According to our friends at Recursion, over 60% of HMBS payoffs last month were due to Mandatory Purchase, the highest percentage in 3 ½ years. Last month’s 98% MCA Mandatory Purchases totaled $440 million, the highest dollar total in nearly 3 years.

Including the Mandatory Purchases, HMBS paid off at a 14.2% annual rate in January, the slowest one-month rate since February 2016. Exclusive of Mandatory Purchases, the rate of HMBS payoffs is falling rapidly. HMBS payoffs resulting from underlying HECM loan payoffs, including payoffs due to mortality and refinancing, fell to less than 6%, a seven-year low and less than one-third the rate of a year ago.

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

HECM Mortgage-Backed Securities (“HMBS”) issuance collapsed in January to $523 million, falling for the ninth straight month. This monthly total is the lowest in nearly 3 years and the third lowest since 2014. Only 62 pools were issued, the lowest monthly issuance count in ten years.

On November 30 of last year, Reverse Mortgage Funding (“RMF”), the largest HMBS issuer of record, filed for bankruptcy. As a result, Ginnie Mae acquired RMF’s HMBS portfolio. Ginnie Mae/RMF issued no HMBS pools in January. The fate of this large HMBS portfolio is still unclear at this time.
HMBS issuance set a new record in 2022, with nearly $14 billion issued. In the current market environment, HMBS issuers will be hard pressed to come anywhere near those numbers.

January’s original (first participation) production fell sharply to $347 million, down from $448 million in December, $516 million in November and less than one-fourth of April 2022’s record $1.4 billion in new issuance. January’s original new loan pool production was also much less than that of January 2022, when approximately $1.18 billion in original new HMBS pools were issued.

The 62 pools issued in January consisted of 23 first-participation or original pools and 39 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. With Ginnie Mae/RMF abstaining from issuance, last month’s tail pool issuances totaled $175 million, well below the typical range.

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

HMBS payoffs fell again in December, as the refinancing retreat continued. December payoffs totaled about $815 million, the lowest payoff amount in 23 months and the lowest payoff rate in nearly 7 years. Outstanding HMBS rose to a record $59.8 billion due to faster roll-up from rising interest rates and the drop in payoffs.

Higher interest rates finally caught up with the HMBS market in 2022, driving down Principal Limit Factors (initial loan-to-value ratios or “PLFs”) sharply, but big trouble came in the fourth quarter. In October, the trend of declining home prices became more clear and widespread. In November, Reverse Mortgage Funding, holder of the largest HMBS servicing portfolio, declared bankruptcy. In December, AAG, the top HECM originator, agreed to sell its assets to Finance of America Reverse, taking another major HMBS issuer out of the picture.

Also in December, Ginnie Mae took over RMF’s HMBS portfolio. In Ginnie Mae’s recent data release, “Ginnie Mae – Reverse Mortgage Funding 42” is now shown as the issuer of record for the 4,053 former RMF pools. This new “Issuer 42” accounts for over $21 billion, about 35% of all outstanding HMBS.

The 10-year treasury fell sharply in recent weeks and the lending limit/MCA was raised to $1,089,300 in 2023; it remains to be seen if this will slow the steady decline in industry volume.

When a HECM loan balance reaches 98% of its MCA, the HMBS issuer is required to buy the loans out of the HMBS pool, and then may assign the loan to HUD if the loan is not in default. This is effectively a prepayment event for the HMBS investor, even though the underlying HECM loan remains outstanding. According to our friends at Recursion, over 53% of HMBS payoffs last month were due to Mandatory Purchase. Last month’s 98% MCA Mandatory Purchases totaled nearly $414 million, the highest total in 3 years.

Including the Mandatory Purchases, HMBS paid off at a 15.2% annual rate in December, the slowest one-month rate since February 2016. Exclusive of Mandatory Purchases, the rate of HMBS payoffs is falling rapidly. HMBS payoffs resulting from underlying HECM loan payoffs, including payoffs due to mortality and refinancing, fell to about 7% for the first time in 3 years, barely one-third the rate of a year ago.

Despite the recent industry volume slowdown, 2022 set a new record: just under $14 billion in HMBS issued, topping last year’s record of $13.2 billion. With the strong headwinds faced by the reverse mortgage industry, the remaining HMBS issuers will struggle to reach half that total in 2023.

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