HMBS Issuance Bounces Back; Tails Wag the Dog Again With Record Number of Pools

HMBS issuers sold $690 million in new pools during October 2014, the second highest monthly issuance this year, second only to January’s $711 million total. Last month’s total was $498 million. 106 pools were issued, the most ever, consisting of 59 original issuances and 47 tail pools. By comparison, HMBS issuance totaled $761 million in October 2013, and averaged nearly $800 million per month during 2013. Thus far in 2014, HMBS issuance is averaging only $535 million per month.

Total HMBS outstanding is now just over $49.2 billion, up from $48.9 at the end of September. HMBS float increases with new issuance and negative amortization and decreases with payoffs of underlying HECMs. The prepayment rates of seasoned HECM loans underlying HMBS pools continue to edge up, exceeding 11.5% over the last 6 months. This trend should continue for some time, as more and more seasoned HECM loans are assigned to FHA when their unpaid balances reach 98% of the Maximum Claim Amount. If issuance and interest rates stay low, overall HMBS outstanding may decline for the first time.

Original HMBS pools are created when a pool of FHA-insured Home Equity Conversion Mortgages (“HECMs”) is securitized for the first time. Tail HMBS issuances are HMBS pools created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance. The 47 Tail Issuances tallied $155 million in October, the highest number of tail pools issued in any month, and the second highest dollar amount.

Newly originated loans comprise a large majority of HMBS issuance in any given month. As a result, HMBS issuance is a pretty good barometer of recent HECM production. Beginning with FY 2014, HECM principal limits were cut once again, and FHA imposed new restrictions on the initial draw allowed for certain borrowers. The resulting lower HECM production inevitably reduces HMBS production. However, beginning August 2014, FHA published a new table that raised principal limits for HECMs at current market interest rates. If interest rates stay low, this may increase HMBS issuance in the remainder of 2014.

Overall Ginnie Mae issuance is down significantly, with $28 billion issued in September 2014, compared to an average of $38 billion per month in FY 2013. September’s total represents the first monthly decline since March of this year. (These figures include both forward and reverse, Ginnie Mae I and Ginnie Mae II securities.)

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

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