HMBS December 2019 Part II: Bye Bye (Peak) Buyout

January 10th, 2020

Outstanding HMBS rose $137 million in December, as lower payoffs were balanced by a strong issuance month, including seasoned new issuance. Payoffs totaled just over $950 million, about the same as November. Total outstanding HMBS now stands at just over $54 billion. For now, supply is in equilibrium, with new issuance and interest roll-up roughly equal to payoffs.

The direction of total HMBS float is now hard to predict given further trends. HMBS issuance in the first half of 2019 was the lowest six months of issuance in five years. In 2019, HMBS also 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 December was a case in point, with buyout dollar volume at its lowest level in nearly 4 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 $476 million, or 51% of the total, the lowest percentage in almost 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 – December 2019

January 8th, 2020

HUD’s December 2019 HECM Endorsement Summary Report shows a total of 2,461 endorsements. Our summary can be found here: NV Endorsement 2019_12 WBWFW. The monthly year-over-year increase is nearly 40%; however, that metric is skewed by muted endorsement activities from December 2018 as a result of last year’s government shutdown. The December 2019 endorsement count is lower than November’s 2,842 and October’s 3,296. As discussed previously, we believe part of the increase in volume in early Q4 can be attributed to lower interest rates. Rates have increased since, and it has likely dampened December endorsement volume.

Most of the top originators have seen endorsement volume declines since October; notably, Liberty Home Equity Solutions only had 2 in December, the first time Liberty had a single digit monthly endorsement count since January 2013. Reverse Mortgage Funding had a strong month with 303 endorsements, the company’s best month since March 2018.

By regions, the Santa Ana field office had 1056 endorsements, a 4% increase over the previous 11-month average. The other field offices however, all had decreases in December. Denver, Atlanta, and Philadelphia had 8%, 20%, and 28% decreases respectively from their previous 11-month averages.

HUD also just released its November 2019 Endorsement Snapshot Report. The report shows that Finance of America Reverse sponsored 322 loans originated by another lender in November, maintaining its lead among sponsors. AAG also had a strong month with 200 sponsored loans in November. Fairway sold 75 loans to another sponsor in November. Fairway’s still the most active seller, but the number of loans sold is significantly lower than the 99 and 103 loans it sold in September and October.

We noted last month that refinanced HECMs have made a come back of late. The November Endorsement Snapshot Report shows there were 391 ‘HECM for Refinance,’ its highest level since April 2018. As a percentage it accounts for over 13% of all HECM endorsements. It is also worth noting that fixed rate HECM endorsements have been dwindling steadily since 2018Q3. For several years prior, fixed rate HECM endorsements averaged 400+ loans per month. Since June 2019, fixed rate HECM endorsements have not exceeded 85 loans per month.

New View Advisors continues to offer its Who Buys What From Whom (WBWFW) analysis 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. WBWFW 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 who’s buying what from whom. The dataset is more complete and timely than what endorsement analysis can show.

2019 HMBS Issuer League Tables – No Surprises

January 3rd, 2020

AAG kept its frontrunner HMBS issuer position throughout 2019, ending the year with $1.97 billion of issuance and 24% market share. It’s worth noting AAG’s issuance totals are all new originations and tails, with no highly seasoned pools issued. Longbridge finished in second place with $1.72 billion of issuance and 21% share, including more seasoned HMBS issuance in Q4. RMF stayed in third with $1.50 billion issued and 18% market share, which includes issuance assumed from the Live Well Financial bankruptcy. FAR was fourth with $1.21 billion issued and 14.7% market share, and PHH Mortgage Corp placed fifth with $962 million and 11.7% market share. These five issuers accounted for 89.2% of all issuance, inching closer to the Top-5 concentration high of 91% at year-end 2018. There was no change in rankings order from Q3, and all 14 HMBS issuers were active during the quarter.

2019Q4 saw $2.28 billion of HMBS issued, down slightly from Q3’s $2.33 billion, but on the upward trajectory seen all year. Nonetheless, at $8.26 billion, annual industry volume was off almost 14% from a year ago. 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.

HMBS December 2019: Stocking Half Full in 2018? Then Hang Two Stockings This Year

January 3rd, 2020

HMBS issuance totaled $908 million in December 2019, as lower rates continued to strengthen new production. 92 pools were issued in December, including about $484 million of new unseasoned HECM first participation pools, maintaining the high monthly total for new production this year. This month’s total was also helped by two large seasoned new issues, including a CMT-indexed pool. For comparison, HMBS issuers sold 95 pools totaling $619 million in December 2018.

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. Yet, with this month’s issuance, the HMBS market totaled about $8.3 billion for calendar year 2019. HMBS issuance totaled $9.6 billion in 2018 and $10.5 billion in 2017. However, securitization of private reverse mortgages was much higher than previous years. As a result, we estimate that the total issuance of reverse mortgage securities backed by new collateral was about the same as 2018.

Some other trends to watch in 2020:

What happens to LIBOR?
The industry relies heavily on the 12-month LIBOR index for its adjustable rate HECMs. LIBOR is scheduled to go away in 2021, and the plan to replace this index is not clear.

What happens to HECM?
HUD has already hinted at further change. Despite significant improvements in HECM performance over the last several years, restrictions on HECM to HECM refinancing and county level MCA limits are on the table. Are lower Principal Limit Factors also looming?

Will private reverse mortgage production surpass HECMs?
Private reverse mortgages, most of them jumbo-sized, now make up more than 25% of new origination by dollar volume. As HECM is cut back and new private products are introduced, can private RMs surpass HECM as the industry’s main product?

December’s production of original new loan pools was about $484 million, compared to $506 million in November, $426 million in October, $393 million in September, $390 million in August, and $321 million in July. Last month’s tail pool issuances totaled $220 million, within the range of recent tail issuance.
December 2019 issuance divided into 33 First-Participation or 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. 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 November 2019 Part II: HMBS Float in Equilibrium at $54 Billion

December 10th, 2019

Outstanding HMBS fell by $33 million in November, as lower payoffs were balanced by a strong issuance month. Payoffs totaled just under $928 million, the lowest amount in 9 months. Total outstanding HMBS fell to about $53.9 billion, a three-year low, but scarcely different from last month’s total. This is only the second month HMBS float has been less than $54 billion since May 2016.

After months of decline, the direction of total HMBS float is now hard to predict, given further trends. HMBS issuance in the first half of 2019 was the lowest half of issuance in five years. With one month to go, HMBS issuance figures to post 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. This month, the float appears to be in equilibrium, but can that last?

We predicted continuing declines in Mandatory Buyouts and November was a case in point with buyouts at their lowest level in over 3 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. 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 over.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $517 million, or 56% of the total. This continues a gradual 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.

November 2019: Issuers Give Thanks for Abundant HMBS Harvest

December 5th, 2019

HMBS issuance totaled $732 million in November 2019, as lower rates continued to strengthen new production. 89 pools were issued in November, including about $506 million of new unseasoned HECM first participation pools, easily the highest monthly total for new production this year, and the fourth straight monthly increase. For comparison, HMBS issuers sold 84 pools totaling $522 million in November 2018.

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. Yet, with this month’s issuance, the HMBS market is on track to total about $8 billion for calendar year 2019. HMBS issuance totaled $9.6 billion in 2018, and $10.5 billion in 2017.

November’s production of original new loan pools was about $506 million, compared to $426 million in October, $393 million in September, $390 million in August, $321 million in July, $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 $225 million, within the range of recent tail issuance. As predicted last quarter, we are seeing the benefit of lower interest rates helping new origination volume.

November 2019 issuance divided into 35 First-Participation or 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. 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.

HECM Endorsement Analytics – October 2019

November 25th, 2019

HUD’s October 2019 HECM Endorsement Summary Report shows a total of 3,296 endorsements; it is a 36% increase from September’s 2,420 endorsements. Our summary can be found here: NV Endorsement 2019_10.  Other than in February 2019, when the market recovered from the year-end slowdown and reached over 4,000 endorsements, October’s endorsement count is the strongest since May 2018. Part of the increase in volume can be attributed to lower interest rates. Now that interest rate declines have stalled, it remains to be seen if higher endorsement volume will continue.

Based on annual endorsement count, the ranking of the top 15 originators changed only slightly. Most notably, Open Mortgage had 108 endorsements in October. It is the first time Open Mortgage has exceeded 100 endorsements since 2018Q1.

HUD released its September and October Endorsement Snapshot Reports simultaneously. The reports show that Finance of America Reverse sponsored 288 and 273 loans originated by another lender in September and October, respectively, maintaining its lead in this category. American Advisors Group sponsored 200 such loans in October. That’s the highest number American Advisors Group has produced since February 2018. Fairway sold 99 and 103 loans to another sponsor in September and October, still by far the most active seller of HECM closed loans.

HUD’s Snapshot Report breaks down endorsements by type. From 2016 to the beginning of 2018, between 10% and 20% of HECM endorsements were for refinance. From March 2018 until August 2019, that percentage dropped to approximately 5% per month. However, during the last two months, HECM Refinance endorsement count has crept back to more than 10% of total endorsement volume.

New View Advisors released its October update of the Who Buys What From Whom (WBWFW) report. As a reminder, the WBWFW report compiles publicly available Ginnie Mae data to show which HMBS issuers buy HECMs from which lenders. One of the reports displays loans sales by month, by top 100 lender, by HMBS issuer. The October update shows that over the past 12 months, 63% of total origination/securitization volume was sold from originators to HMBS Issuers. Only 37% was originated and securitized by the same company. Of those loans that exchanged hands, 70% were sold by the top 100 sellers, and 20% were sold by the top 2 sellers. The total trade volume from the Top 100 list took a dip in September, with $98 million HECMs originated, sold, and securitized, the lowest total in the last 12 months. August was the high water mark, with over $178 million HECMs originated, sold, and securitized.

HMBS October 2019 Part II: HMBS Float Drops Below $54 Billion

November 11th, 2019

Outstanding HMBS fell by $180 million in October, as continued strong payoffs outweighed a solid issuance month. Payoffs once again totaled just under $1 billion. Total outstanding HMBS fell to $53.9 billion, a three-year low. This is the first month HMBS float has been less than $54 billion since May 2016.

Total HMBS float will likely fall further given current trends. HMBS issuance in the first half of 2019 was the lowest half of issuance in five years. With two months to go, HMBS issuance figures to post the lowest annual total in five years.

We do 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 by the issuers or repaid by borrowers. From now on, billion-dollar-plus payoff months will be the exception rather than the rule, although this month came close. 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 $536 million, or about 54%, of the payoffs last month. This percentage represents a three year low and continues a gradual 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.

Mr. October Comes Through for Team HMBS

November 1st, 2019

HMBS issuance totaled $642 million in October 2019, as lower rates continued to strengthen new production. 82 pools were issued in October, including about $426 million of new unseasoned HECM first participation pools, the highest monthly total for new production this year, and the fourth straight monthly increase.

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. Even with this month’s issuance, the HMBS market will be hard pressed to equal last year’s totals. For the entire year of 2018, HMBS issuance totaled about $9.6 billion, and $10.5 billion in 2017. HMBS issuers sold 99 pools totaling $1.018 billion in October 2018.

October’s production of $426 million of original new loan pools surpasses $393 million in September, $390 million in August, $321 million in July, $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 $216 million, on the low end of the range for recent tail issuance. As predicted, we are likely seeing the benefit of lower interest rates helping new origination volume.

October 2019 issuance divided into 34 First-Participation or Original pools and 48 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.

HECM Endorsement Analytics – September 2019

October 16th, 2019

HUD’s September 2019 HECM Endorsement Summary Report released this week shows a total of 2,420 endorsements, 3.4% higher than August’s 2,341 units, our writeup of which can be found here: NV Endorsement 2019_09. There was no change in the endorsement count ranking of the top 15 originators from August. Live Well Financial will fall off the charts in about six months. As previously mentioned, endorsement volume has been fluctuating at about 2,500 units a month since March. Even with the modest production increases aided by falling interest rates, the industry is still on track to endorse just 31,000 HECMs in calendar year 2019, a 26% decrease from 2018 and the lowest level of production since 2003.

For September, New View Advisors is introducing a report we call “WBWFW.” Apart from analyzing HUD’s endorsement data, New View Advisors also compiles publicly available Ginnie Mae data showing which HMBS issuers buy HECMs from which lenders, or Who Buys What From Whom. Unlike endorsement data, which is a lagging indicator and less representative of current market activity, Ginnie Mae data shows HECM unpaid principal balance (UPB) securitized in the current month.

The WBWFW supplement comes in three parts:

  1. Top Originators, a ranking by original HECM UPB of all 1,229 lenders over the last twelve months;
  2. WBWFW, an alphabetical cross-reference between every lender and the HMBS issuer that securitizes its loans; and
  3. 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 can show.