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.

HMBS May 2018 Part II: Reprieve Over, Supply Shrinking at Record Rate

June 10th, 2018

HMBS supply fell in May by a record $317 million, due to a combination of high prepayments and low issuance.

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 May was a measly $367 million; overall new supply was $579 million, as tail issuance remained strong.

We estimate that negative amortization of outstanding pools totaled $203 million. 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 RecursionCo show about $693 million of the payoffs resulting from Mandatory Buyouts, the second highest total ever. However, for the third month in a row, this was a lower percentage of overall buyouts. This wave of buyouts is an echo of the very large issuance from 2009 through the first half of 2013, especially those backed by fixed rate HECMs with higher interest rates and higher initial PLFs. The second and third quarters 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.

May 2018 HMBS: April Showers Bring … Not Many May Flowers

June 1st, 2018

After a robust month in April, HMBS issuance retreated to its new normal in May. Without the help of any highly seasoned pools, HMBS fell to $579 million, the lowest monthly level since September 2014.

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 so far many HECM lenders have reduced interest rates and margins to maintain PLFs.

Production of original new loan pools was just under $367 million, down even from April and March’s $401 and $419 million, and down sharply from $604 million in February, $657 million in January, and $747 in December 2017. By comparison, HMBS issuance topped $768 million in May 2017. For the foreseeable future, this low level of production looks like the new normal. Last month’s tail pool issuance also retreated to just under $213 million, though this is well within the range of recent tail issuance.

May issuance divided evenly into 57 original pools and 57 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 offset challenging periods such as this.

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

HMBS April 2018 Part II: Temporary Reprieve from Supply Shrinkage; Are We at Peak Mandatory Buyout?

May 10th, 2018

HMBS supply rose in April, increasing by nearly $360 million from $56.2 to $56.5 billion. High prepayments were outweighed by high issuance, including two large highly seasoned pools totaling $542 million. Without these seasoned pools, HMBS supply would have declined by over $180 million.

We noted in our 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 was a measly $401 million, but with the seasoned pools and strong tail issuance HMBS securitization volume rose to $1.2 billion, the seventh highest HMBS monthly issuance level ever.

We estimate that negative amortization of outstanding pools totaled $210 million, slightly exceeding last month’s record. Despite the $1.057 billion in payoffs (5th highest ever), total outstanding HMBS float rose $358 million. 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 $676 million of the payoffs resulting from Mandatory Buyouts, the second highest total ever. However, for the second month in a row, this was a lower percentage of overall buyouts. This wave of buyouts is an echo of the very large issuance from 2009 through the first half of 2013, especially those backed by fixed rate HECMs with higher interest rates and higher initial PLFs. We may be at “Peak Buyout,” and see a relative decline in Mandatory Buyouts in the near future.

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

April 2018 HMBS: Perennials Bloom; New Growth Sparse

May 1st, 2018

HMBS issuers welcomed the sunshine of their perennial favorites: tail issuance and highly seasoned collateral, which made for a bountiful spring bloom in April. Last month’s tail pool issuance topped $260 million. With the help of over $542 million in highly seasoned pools, HMBS issuance rose to $1.2 billion, the 7th highest monthly level ever. The supply of highly seasoned, unsecuritized HECM loans is a rapidly melting iceberg, but it’s a big iceberg. Fannie Mae still has about $25 billion in HECMs on its books, years after ceasing its HECM loan purchases.

Despite this, reverse mortgage lenders face a prolonged period of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Mortgages (“HECMs”) effective this fiscal year. The supply of recently originated unsecuritized HECMs originated at the old PLFs is essentially exhausted, allowing the full effect of the new PLFs to hit hard. Higher interest rates will not help either, as they generally require lower PLFs.

Production of original new loan pools was $401 million, down even from March’s anemic $419 million, and down sharply from $604 million in February, $657 million in January, and $747 in December 2017. For the foreseeable future, this low level of new production may be the new normal.

April issuance divided into 63 original pools and 57 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 like the long winter of discontent ahead.

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

Game of Loans II: HMBS Winter Wind Blows Away Supply

April 13th, 2018

HMBS supply shrank significantly in March, falling over $200 million from $56.4 to $56.2 billion. High prepayments and low issuance combined to drive down the total float. The sixth time HMBS supply has declined month to month, this is by far the largest such shrinkage.

Noted in our previous blog on March issuance, reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Loans (“HECMs”) effective this fiscal year. HMBS issuance fell to $626 million, the lowest monthly level since September 2014.

We estimate that negative amortization of outstanding pools totaled $210 million, a record. However, the meager issuance and nearly $1.036 billion in payoffs (5th highest ever) resulted in the $200 million reduction in total outstanding HMBS float.

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

2018Q1 HMBS Issuer Rankings – Seasoned Collateral Makes The Difference

April 2nd, 2018

RMF surged to the top of the leaderboard in 2018Q1, issuing almost $1.1 billion of HMBS securities for a 36.4% market share, $491 million over #2 AAG’s $587.2 million and 19.8% market share. RMF’s totals include the issuance of highly seasoned pools in February. FAR stays in third with $453 million issued and 15.3% market share. Ocwen Loan Servicing and Live Well Financial again round out the top five issuers. Ocwen issued $223 million for a 7.5% market share, and Live Well was fifth with $209 million issued for a 7% market share. The top five issuers accounted for 86% of all issuance, up 6% over last quarter. There were 15 active HMBS issuers in the first quarter.

The first quarter totaled $2.97 billion of HMBS, 28% of calendar 2017’s entire issuance, though this belies the true story. Unless highly seasoned HMBS becomes the norm, expect much lower volume for the remainder 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 totaled $10.5 billion for 2017, just $160 million shy of 2010’s record year of $10.7 billion; those are likely to remain in the record books for the foreseeable future.

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