HMBS December 2017: It Is Better to Give New Issuance than to Receive Payoffs

The HMBS market closed out 2017 with a strong month of new issuance but remains range bound in total size. Total HMBS float has been stuck between $54 billion and $56 billion for nearly two years, though this may change in 2018 as the new Principal Limit Factors (“PLFs”) start to reduce origination volume. In December HMBS float rose by over half a billion dollars, helped by the largest monthly issuance in nearly 8 years. HMBS Prepayments topped $1 billion, the 6th highest monthly payoff ever. Issuers kept HMBS supply levitating with 106 new pools totaling $1.35 billion.

December issuance divided into 53 original pools and 53 tail pools. Two highly seasoned original new loan pools were issued. Production of original new loan pools was a strong $748 million, reflecting the mad rush of origination at the end of FY 2017.

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. December’s tail issuance was strong: about $241 million.

Total outstanding HMBS rose by about $511 million from November. We estimate the change in HMBS balance was composed of over $186 million in negative amortization, plus the $1.35 billion in new issuance, minus $1.02 billion in payoffs. December broke a fifteen month streak in which payoffs exceeded new issuance.

Payoffs remained high in December, still above a 20% annual rate, as more seasoned HECM loans continue to liquidate as they reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo crunched the numbers: the payoffs from 98% MCA puts totaled approximately $590 million last month, down 25% from last month’s record.  Nonetheless, according to Recursion the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013.

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

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