HMBS December 2020 Part II: Mad Dash to the LIBOR Exit

January 12th, 2021

Outstanding HMBS rose by $412 million in December 2020, as issuers rushed to issue new LIBOR pools. After February 2021, GNMA will no longer allow issuance of HMBS pools backed by first participations of LIBOR-indexed loans. Payoffs fell slightly to approximately $900 million. Total outstanding HMBS rose again, to just under $56 billion, the highest total in over two years.

In 2019, HMBS posted its lowest annual issuance total in five years. But 2020’s low interest rates and higher lending limit boosted production to a near-record $10.6 billion. The industry may struggle in 2021 to reach similar levels of production.

“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. Each month fewer and fewer of these peak issuance loans remain, so fewer HECM loans reach their 98% Maximum Claim Amount (“MCA”) buyout threshold. Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $230 million, a 6-year low. 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. With buyouts at less than one-third their peak level, Peak Buyout is long gone.

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

HECM Endorsement Analytics – December 2020

January 5th, 2021

HUD’s December 2020 HECM Endorsement Summary Report shows a moderate rebound of endorsement activity to finish the year, our summary of which can be found here: NV Endorsement 2020_12. 4,097 HECM loans were endorsed in December, a 15% increase over November. Endorsements totaled 44,661 units in 2020, compared to 32,472, 41,683, and 55,239 units in 2019, 2018, and 2017 respectively.

The HECM market has become further concentrated between a few large lenders. During 2020, the top four originators accounted for 58.7% of all HECMs, up from 54.4% in 2019. Apart from One Reverse Mortgage, which ceased HECM lending in February, there have been no major shifts in originator rankings.

One notable development for 2020 was the increase in HECMs accounted for as a refinancing. HUD’s November Endorsement Snapshot Report shows refinancings accounting for almost 25% of HECM endorsements. The same metrics for 2019, 2018, and 2017 were 7%, 7%, and 16%, respectively.

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

2020 Full Year HMBS Issuer League Tables – Consistent AAG Takes the Win

January 4th, 2021

AAG maintained its #1 HMBS issuer ranking to lead all issuers in 2020 with $2.823 billion of issuance and 26.5% market share. This is the second consecutive year AAG has taken the crown. FAR jumped two notches into second place for the year with $1.869 billion issued and 17.55% market share. Longbridge dropped to third, just behind FAR, with $1.865 billion issued and 17.52% market share, and RMF was fourth with $1.822 billion issued and 17.1% market share. PHH Mortgage stayed in fifth for the year, with $1.352 billion and a 12.7% market share. These five issuers continue to account for 91+% of all HMBS issuance. There were 13 active HMBS issuers in 2020.

2020Q4 saw $3.04 billion of HMBS issued, slightly off third quarter’s $3.16 billion but up significantly from second quarter’s $2.35 billion and first quarter’s $2.09 billion. With HMBS capital markets recovered from the Coronavirus pandemic, HECM origination volume up, and a last-minute surge of LIBOR-based HMBS issuance before conversion to CMT, 2020 HMBS volume crossed $10.6 billion, second only to 2010’s $10.8 billion. While the industry got a 12th hour, 2-month reprieve, time will soon tell how Ginnie Mae’s decision to end LIBOR as an index for new HMBS pools backed by first participations will affect volume.

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

HMBS December 2020: Santa Grants Every Wish in Record Breaking Month

January 4th, 2021

HMBS issuance totaled $1.2 billion in December 2020, as issuers continued their mad rush to originate and securitize LIBOR-indexed HECM loans before the demise of that index. It turns out December 2020 will not be the last month in which Ginnie Mae allows pooling of new HMBS pools backed by first participations of LIBOR-based HECMs either; the deadline was extended through February. 97 pools were issued in December, of which 79 were LIBOR pools.

A near-record $10.6 billion in HMBS was issued in 2020, easily beating last year’s total of $8.3 billion, 2018’s $9.6 billion, even eclipsing the $10.5 billion in 2017. 2010 remains the all time HMBS volume year with $10.8 billion issued, when Principal Limits were high, full draw fixed rate was all the rage, and no borrower financial assessment safeguards had been established.

December production of original new loan pools was a record $878 million, compared to November’s production of $765 million, October’s $674 million, September’s $693 million, August’s $666 million, July’s $691 million, $593 million in June, $586 million in May, $470 million in April, and $484 million in December 2019. Last month’s new loan pool issuance exceeded the previous record of $834 million, set in April 2013.

December issuance divided into 47 first-participation or original pools, and 50 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. Last month’s tail pool issuances totaled $210 million, within the typical $200-$250 million range.

In January 2020 we posed three questions for the year: what happens to LIBOR, what happens to HECM, and will private reverse mortgage production surpass HECM production.

The transition away from LIBOR remains uncertain. Yes, Ginnie Mae will stop securitizing new issue LIBOR based HECMs in March, but what about existing tail issuance? The Constant Maturity Treasury “CMT” index will return as the index for adjustable rate HECM loans, at least until a transition to another index, likely the Secured Overnight Financing Rate “SOFR,” occurs. However, no new first-participation CMT pools have been issued for many years. How will the capital markets respond? Will HUD transition away from LIBOR directly to SOFR, and if so when?

HECM was a bright spot for the industry in 2020. Origination volume soared, borrowers realized increased proceeds from historically low interest rates, the MMI Fund improved dramatically, and HUD, lenders, and NRMLA brought about meaningful borrower protections in the face of the Coronavirus pandemic.

Private production fell off in 2020, due mostly to lower interest rates for HECMs. Why couldn’t private product match the interest rate drops HECM enjoyed? Now, private product must also compete with an even higher Maximum Claim Amount of $822,375, in effect starting January 1. Will private loan volume ever match HECM?

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

HMBS November 2020 Part II: HMBS Supply Rises Again

December 9th, 2020

Outstanding HMBS rose by about $125 million in November, as both payoffs and new issuance continued strong. Payoffs remained at about $950 million, despite the lower level of mandatory buyouts. Total outstanding HMBS rose again, to over $55.5 billion, the highest total in over two years.

In 2019, HMBS posted its lowest annual issuance total in five years. But 2020 has shaped up differently; low interest rates and a higher lending limit boosted production significantly. This trend will likely continue for December as HMBS issuers rush to beat the year-end LIBOR deadline, after which no new first-participation LIBOR pools may be issued. Beginning in 2021, the industry may struggle to reach the same levels of production.

“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. Each month fewer and fewer of these peak issuance loans remain, and so fewer HECM loans reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $254 million, just above September’s 5-year low. 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. With buyouts at one-third their peak level, Peak Buyout is long gone.

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

Forward Mortgage Does Not Subsidize Reverse Mortgage

December 7th, 2020

This blog began in 2009 with an entry entitled “The Trouble with HECM.” What was the Trouble we predicted? Is FHA’s Home Equity Conversion Mortgage (“HECM”) reverse mortgage program in for more trouble? The reader of FHA’s recent report, the “Federal Housing Administration’s Annual Report to Congress Regarding the Financial Status of the FHA Mutual Mortgage Insurance Fund,” would probably think so. The report depicts FHA’s HECM Reverse Mortgage Portfolio and Forward Mortgage Portfolio, respectively, as the Goofus and Gallant of mortgage loans. In no fewer than three instances does the report describe the Gallant Forward Mortgage Portfolio as “subsidizing” the “volatile” Goofus Reverse Mortgage Portfolio. Gallant Forward Mortgage is an earnest young first-time homebuyer, whereas Goofus Reverse Mortgage is a grumpy old man with anger issues.

In this blog entry, we address these questions by discussing the FHA report, especially as it relates to HECM. We will conclude with three major points:

(1) The HECM program’s outlook has improved significantly, and may be on the verge of returning to surplus;
(2) FHA’s forward mortgage program’s delinquencies have risen sharply at a time when HECM defaults remain low; and
(3) Therefore, FHA’s forward mortgage portfolio cannot be said to subsidize its HECM reverse mortgage portfolio. FHA should improve its disclosure to show where its risk really is, prospectively and historically, for both HECM and forward mortgage.

We wrote our first blog entry around the time when the HECM program began to show a small deficit. Prior to that, it was fashionable to say that the HECM program subsidized the FHA’s forward program. The HECM program had a negative subsidy of $462 million in FY 2008, down from $697 million in FY 2007, but still profitable to FHA. Forward mortgages, on the other hand, were in the midst of their worst crisis since the Great Depression.

In 2009, the first large cohorts of HECM loans had not yet been stress-tested, as HECM volume before the crisis years of 2007-2009 were relatively small. But as the HECM program grew, the weakness in the program’s design was revealed. In 2009, we predicted the HECM portfolio was headed for a big loss, due to very high loan-to-value ratios (“LTVs,” also referred to as “Principal Limit Factors,” or “PLFs”). Back then, it was possible for an 80 year-old HECM borrower to borrow 78% of their home value, without any financial assessment or limitation on the initial draw amount. It was only a matter of time until many of these loans were underwater.

Our “Trouble with HECM” blog predicted FHA’s small HECM deficit would grow and could be potentially very large. Sure enough, in FHA’s FY 2012 MMI Report, the surplus of a few years earlier had been replaced by a deficit, an Economic Net Worth of negative $2.8 billion (Financial Status of the FHA Mutual Mortgage Insurance Fund, p. 35). The trouble had come.

Since then, FHA improved the design of the HECM program. PLFs were lowered, the initial draw amount was restricted, and Financial Assessment (“FA”) was enacted. The 80-year-old who could receive a 78% LTV HECM in 2009 could then borrow no more than 64%, even less depending on interest rates. As we have analyzed in previous blogs, the implementation of Financial Assessment also materially reduced the number of HECM borrowers unable to keep current tax and insurance payments. Today, default rates for FA-era HECMs are a fraction of the default rates for pre-FA era HECMs.

These FHA reforms have two major implications. First, there is a good and bad portion of FHA’s HECM book, the high-LTV, pre-FA loans, and the low-LTV, FA loans. Second, with each passing day, the old riskier HECMs pay off, good new less-risky HECMs are added, and the portfolio percentage comprised of FA loans grows larger. According to this year’s FHA report (p. 110), about half the loans in the HECM portfolio were originated before FY 2015. At a certain point in the not-too-distant future, FHA’s HECM book will consist almost entirely of FA-era loans.

So are HECMs out of trouble yet? That brings us to this year’s FHA MMI report.

Types of Loss: Type I and II; Realized versus Projected

At FY-end 2020, FHA insures HECM loans totaling $62.638 billion: this amount is known as the Insurance-in-Force (or “IIF,” p. 118). During FY 2020, FHA paid $6.22 billion in HECM claims, down from $9.55 billion in FY 2019 (p. 47).

HECMs claims are divided into two types: Type I and Type II. In FY 2020, Type I Claims totaled about $500 million; the remaining $5.7 billion were Type II Claims. To the reader untutored in the idiosyncrasies of the HECM program, the magnitude of the Type II Claims seems gigantic: at nearly $6 billion, they approach almost one-tenth of the IIF and nearly a year’s worth of HECM production. However, Type I Claims represent realized losses to FHA, whereas Type II Claims do not.

Type I Claims

Type I Category Claims “represents the dollar volume of claims generated when the borrower no longer occupies the home, and the property is sold at a loss, with the mortgage never being assigned to the Secretary of HUD” (p. 47). These claims are realized losses for FHA, which insures investors against these crossover losses. For FY 2020, Type I Claims equaled about 0.75% of the total outstanding balance of HECMs insured by FHA (p. 47 and p. 111). Stated otherwise, these are realized losses incurred by HMBS issuers and HECM investors and reimbursed by FHA during the fiscal year.

The rate of Type I Claim losses each fiscal year has fallen steadily since FY 2015 (p. 47 and Table B-25 on p. 111). Barring significant economic problems, this trend will almost certainly continue as the HECM program portfolio quality improves, as pre-FA loans pay off, and FA loans are added.

Type II Claims and the Secretary’s Notes

Type II Claims are very different. The Type II Claim is a sale, or “assignment,” of an Active HECM loan from an investor to HUD when the balance of that loan reaches 98% of its Maximum Claim Amount, or “MCA.” The MCA is a dollar amount, determined at the time of the HECM loan’s origination, equal to the lesser of the property value and the HECM lending limit. By “Active,” the HECM borrower is alive, and the loan is not in default for any reason. As the report puts it, “The Type II Claim represents the dollar volume of claims resulting from the assignment of the mortgage to the Secretary of HUD when the mortgage reaches 98 percent of MCA” (p. 47).

Therefore, the Type II Claim amount does not represent a realized loss; it is a loan sale in which the investor assigns a HECM loan to HUD. HUD pays a price of 100%, or par. Again, HUD will not purchase any HECM loan that is matured or in default. Investors therefore benefit from a put option that shields them from losses and shortens the otherwise very long duration of HECM loans. HUD then holds the loan in its “Secretary’s Notes” portfolio until that loan pays off. Through this Claim Type II mechanism, HUD has become a very big investor in highly seasoned HECM loans. The Secretary’s Notes portfolio now holds nearly 150,000 HECM loans (FHA presentation to NRMLA p. 24), totaling an estimated $30 billion in unpaid balance.

Due to the terms of the Type II Claim assignment, these loans are positively selected with respect to credit, but negatively selected with respect to LTV. At the time of assignment, HUD may be buying a loan that is underwater (a loan with an LTV exceeding 100%), however, for most HECM loans this is probably not the case, as the underlying properties have benefitted from several years of home price appreciation.

It is worth noting these loans have interest rates well above the treasury funding rate, and the borrower’s mortgage insurance premium (“MIP”) rate continues to accrue on top of the interest rate. Whether HUD can collect that interest accrual, or even the loan balance it paid for, depends on the LTV. For loans in the Secretary’s Notes portfolio that are not underwater at the time of loan payoff, HUD can collect the full loan amount and make a decent profit. For loans that are underwater at the time of loan liquidation, HUD suffers a realized crossover loss equal to the excess of the loan balance over the property value, plus any related expense.

The latest FHA report does not disclose much data on the Secretary’s Note portfolio itself; plus, this disclosure has varied from year to year. However, reading between the lines of the report, it is clear that the majority of expected future HECM MMI fund losses are concentrated in the Secretary’s Notes portfolio.

If the Type I Claim Net Present Value (“NPV”) loss is 0.75% per year (i.e. Type I Claims per year/IIF), and continues to decline, we estimate that the total Type I Claim-related loss is approximately 2% of IIF in present value, given the duration of the non-assigned portfolio. Using FHA’s own estimate of the total “Net Present Value of loss” of 10% of IIF (p. 118), less the estimated Type I Claim-related NPV of loss of 2% of IIF, a total Type II-related NPV loss equal to 8% of IIF is projected. Said otherwise, a total NPV loss of $5 billion is projected for the entire Secretary’s Notes portfolio, not just for FY 2020.

This $5 billion loss is 15% – 20% of the total Secretary’s Notes portfolio. Such a high loss severity is possible with a combination of adverse factors, such as high LTVs, expenses, inflated appraisals, and servicing issues. The FHA report does not provide empirical data showing the portfolio’s recent performance, such as loss severities of recent loan liquidations. If it did, we suspect that it would show that HECM’s troubles were largely caused by high-LTV pre-FA loans, a problem that is melting away as those loans pay off.

FHA should show more detailed performance data for the Secretary’s Notes, by fiscal year, showing dollar amounts and units outstanding, interest accrued, payoffs, realized losses from those payoffs, payoffs without loss, etc. The FHA report should also show realized losses by all product types, both forward and reverse. Only then can the reader make proper comparisons.

It is clear that for HUD’s HECM program, the greater portion of its risk resides in the high LTV loans in the Secretary’s Notes portfolio. Nearly all of these loans are from the pre-FA era. The oldest FA loan is barely five years old; very few have been assigned to HUD. Under the current trend of falling number of assignments, and rising number of payoffs, the Secretary’s Notes portfolio will probably peak sometime in 2022 with 170,000 – 180,000 loans. As this portfolio shrinks, so will HUD’s losses.

Models of Volatility

In the section “MMI Fund Capital Ratio Sensitivity to Modeling Assumptions“ (p. 67), the report discusses the rapidly rising delinquencies in the forward mortgage portfolio, and relates this to the COVID crisis and forbearance provisions allowed by the CARES Act. It discusses some stress-case scenario sensitivity analysis for both forward mortgages and HECMs. So far, the recent economic stress has manifested itself in the forward mortgage program, not the HECM program, where default rates remain low.

The FHA report claims that forward mortgage subsidizes reverse mortgage based on the estimated present values of future losses, but it’s worth noting two anomalies in these estimates (Table C-7 and C-8, p. 118). First, FHA’s estimate for its forward portfolio losses was little changed from last year, despite the COVID crisis and the massive increase in delinquencies. How is this possible?

Second, FHA’s estimate of future HECM losses has declined significantly in each of the past two years. FHA’s estimate of HECM NPV losses topping $21 billion in FY 2018 was reduced to an estimate of $13 billion last year and now $6.3 billion (p. 118). The decline each year is approximately equal to one year of HECM production. An accompanying report, “Fiscal Year 2020 Independent Actuarial Review of the Mutual Mortgage Insurance Fund” (the “Actuarial Report”), shows a similar decline, including a $2.4 billion increase in NPV due to “Impact of Assumption Change” and an $8.3 billion increase due to “Impact of model change.”

No change in economic conditions, program design, or portfolio composition, however favorable, should cause changes of that magnitude. This begs the question, which is really more volatile, the HECM program, the forward mortgage program, or the modeling assumptions?

Conclusion: The Essence of Subsidy

The FHA FY 2020 MMI Fund report states that projected reverse mortgage losses are falling, forward delinquencies are rising rapidly, and HECM is responsible for the entire $6 billion improvement in the fund’s loss reserve. Yet, it concludes that its forward mortgage program subsidizes its HECM reverse mortgage program. FHA bases this claim on prospective losses, but this will likely be proved wrong if current trends continue. Examining FHA’s own report, it appears that prospective losses are a rapidly moving target, changing significantly year to year due to changes in economic conditions, portfolio composition, and modeling assumptions.

We think Forward Mortgage does not subsidize Reverse Mortgage now any more than Reverse Mortgage subsidized Forward Mortgage in 2009. A true subsidy would mean outsized realized HECM losses, and a compelling case that this will continue. This is not demonstrated in the report. In fact, given current trends, a reversal of fortune is possible, in which the HECM program returns to surplus and forward mortgage enters a deficit.

Any loan portfolio can be stratified into a superior performing portion and an inferior performing portion, with the former “subsidizing” the latter. Within the reverse mortgage portfolio, we could say reverse mortgages owned by investors and issuers subsidize the Secretary’s Notes, or that post-Financial Assessment loans subsidizes Pre-Financial Assessment loans. The question is: which characteristic is the most meaningful? Historically, the Loan-to-Value Ratio has proven to be the most important characteristic. Low-LTV loans subsidize high-LTV loans, for both Reverse Mortgage and Forward Mortgage.

Under current trends, the HECM program should be making money for taxpayers by the end of FY 2021. In fact, assuming the Actuarial Report’s lower loss estimate, the HECM program is already in the black (Actuarial Report (Revised), p. 12). By the end of FY 2022, about 70% of the HECM Insurance-In-Force will consist of post-FA HECM loans. The cash flow and Economic Net Worth of the HECM program could then be strongly positive.

HECM Endorsement Analytics – November 2020

December 2nd, 2020

HUD’s November 2020 HECM Endorsement Summary Report shows an ever-slowing endorsement trend, with 3,561 units tallied. Our analysis of the Summary Report can be found here: NV Endorsement 2020_11. Endorsement volume continues to trend lower as 2020 year-end approaches. Compared to April 2020, with a peak of 5,038 endorsements, the industry is now seeing endorsement volume approximately 30% lower, this despite near record HMBS issuance volume. The sudden, forced transition away from LIBOR would be one plausible explanation.

High Tech Lending originated 107 loans that were endorsed, doubling its usual monthly origination; Cherry Creek Mortgage and Traditional Mortgage Acceptance had zero and four loans endorsed respectively, notably less than what each typically originates.

HUD’s October Endorsement Snapshot Report is also now available on its website. Based on this report, HECM For Refinance accounts for over 34% of total endorsements, its largest market share to date. Traditional HECM accounts for 61% of total endorsements, and HECM For Purchase accounts for the remaining 5%.

New View Advisors continues to offer its Who Buys What From Whom (WBWFW) report as part of our endorsement report subscription. The report compiles publicly available Ginnie Mae data to show which HMBS issuers buy HECMs from which lenders. The WBWFW report 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 November 2020: Issuers Carve Up Big LIBOR Turkey but Few Leftovers Remain

December 1st, 2020

HMBS issuance totaled $956 million in November 2020, as issuers continued their mad rush to originate and securitize LIBOR-indexed HECM loans before the demise of that index. December 2020 will be the last month in which Ginnie Mae allows pooling of new HMBS pools backed by first participations of LIBOR-based HECMs. 85 pools were issued in November, of which 73 were LIBOR pools.

Helped by historically low interest rates, lower default rates, and the reemergence of proprietary loans, the reverse mortgage market is stronger than ever. However, this strength may soon be challenged by economic conditions and the transition out of LIBOR. The Constant Maturity Treasury “CMT” index will return as the index for adjustable rate HECM loans, at least until the transition to another index, likely the Secured Overnight Financing Rate (“SOFR”) occurs. No new, first-participation CMT pools have been issued for many years, and probably none will reappear until 2021.

$9.4 billion in HMBS has been issued through November 2020, already beating last year’s total of $8.3 billion. HMBS Issuers are on track to easily exceed 2018’s $9.6 billion total. 2017’s total issuance of $10.5 billion may be out of reach, but not by much.

November production of original new loan pools was $765 million, compared to October’s production of $674 million, September’s $693 million, August’s $666 million, July’s $691 million, $593 million in June, $586 million in May, $470 million in April, $455 million in March, and $506 million in November 2019. Last month’s new loan pool issuance exceeded even November 2017’s high watermark of $755 million, when issuers were rushing to close loans prior to the implementation of Mortgagee Letter 2017-12.

Last month’s tail pool issuances totaled $191 million, below the low end of the typical $200-$250 million range.

November issuance divided into 44 first-participation or original pools, and 41 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.

HECM Endorsement Analytics – October 2020

November 23rd, 2020

HUD’s October 2020 HECM Endorsement Summary Report totals 3,737 endorsements, dropping 5% from last month’s 3,937 tally. Nonetheless, endorsement count maintained its steady pace for the 5th month in a row.  Our analysis can be found here: NV Endorsement 2020_10.

Most of the top originators experienced a drop in endorsements in sync with the overall decline in volume; the number of loans endorsed by AAG, Fairway Independent Mortgage, and Open Mortgage each dropped 10+% compared to the prior month; however, Reverse Mortgage Funding and Mutual of Omaha Mortgage saw their endorsement count each gain by more than 7%.

HUD’s September Endorsement Snapshot Report is now posted on its website. Wholesale sponsors sponsored a total of 1,763 loans originated by another party. Nearly 90% of that total were sponsored by the top six sponsors. Finance of America Reverse continued to be the leading player in this category, sponsoring 535 loans. Notably, new entrant South River Mortgage originated 106 loans originated by another party. While just entering the space midyear, its volume has been up each month and has had endorsed 231 HECMs.

New View Advisors continues to offer its Who Buys What From Whom (WBWFW) report as part of our endorsement report subscription. The report compiles publicly available Ginnie Mae data to show which HMBS issuers buy HECMs from which lenders. The WBWFW report 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 the WBWFW report are included at the end of our 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 October 2020 Part II: HMBS Supply Rises, For Now

November 10th, 2020

Outstanding HMBS rose by about $50 million in October, as payoffs rose and new issuance remained strong. Payoffs increased to $950 million, despite the continued fall of mandatory buyouts. Total outstanding HMBS rose to over $55.4 billion, the highest total in two years.

In 2019, HMBS posted its lowest annual total in five years. But 2020 is shaping up differently. In recent months, low interest rates and higher lending limits boosted production significantly. This trend will likely continue for the rest of 2020 as HMBS issuers rush to beat the year-end LIBOR deadline, after which no new first-participation LIBOR pools can be issued. Beginning in 2021, the industry may struggle to reach the same levels of production.

“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. Each month, fewer and fewer of these peak issuance loans remain, so fewer HECM loans reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $255 million, just above last month’s 5-year low. 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. With buyouts at one-third their peak level, Peak Buyout is long gone.

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