HMBS Blooms but June Swoon Lowers Boom: Payoffs Zoom as Shrinkage Looms

The HMBS market shrank again in June, with another huge prepayment wave outweighing a strong month of new issuance. Nearly 2% of outstanding HMBS supply paid off as HMBS prepayments exceeded $1 billion for the second month in a row. Issuers created 101 pools in June totaling over $779 million. June issuance divided into 50 original pools and 51 tail pools. No seasoned original new loan pools were issued. Production of original new loan pools was a healthy $571 million, up from $543 million in the prior month.

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. In other words, tail pools are created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance. June’s tail issuance was about $208 million, also consistent with recent production.

Last month, total outstanding HMBS shrank by a record $111 million from May. We estimate that last month’s change in HMBS balance was composed of over $181 million in negative amortization (a record), plus the $779 million in new issuance, minus the record $1.07 billion in payoffs. Payoffs have exceeded new issuance for ten months in a row.

Payoffs continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo once again crunched the numbers: payoffs from 98% MCA assignments totaled a record of approximately $640 million last month. This amount has been rising steadily. According to Recursion, the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013. This probably means further shrinkage in HMBS float throughout 2017.

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

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