HMBS Issuance Hits 5-Year Low

HMBS issuers created just $493.6 million in new HMBS pools during February 2014, the smallest monthly HMBS issuance since May 2009. 76 pools were issued, 44 original issuances and 32 tail pools. By comparison, HMBS issuance totaled $710 million in January 2014, $695 million in February 2013, and averaged nearly $800 million per month during 2013. Original HMBS issuances are the pools 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.

HMBS pools can be formed using seasoned collateral, but the healthy premiums of HMBS drive the vast majority of new HECM production quickly into HMBS. Since January 2013, at least 75% of every month’s HMBS issuance has consisted of participations from HECM loans aged 3 months or less. As such, HMBS issuance is a good barometer for recent HECM production.

February 2014 represents the first month in which original HMBS issuances almost entirely reflect HECMs originated in Fiscal Year 2014. Beginning with FY2014, 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.

Seasonality, secondary market conditions, and day count also affect monthly issuance totals. Day count differences account for nearly all the $16 million decline in tail issuance from January to February. However, with a still robust secondary market, and with other previous February issuances at least 40% higher, seasonality is not a factor. In fact, February 2010 was the third highest HMBS issuance month ever, with over $1.4 billion in new pools.

Overall Ginnie Mae issuance is down significantly too, with $21 billion issued in February 2014, compared to an average of $38 billion per month in FY2013. (These figures include both forward and reverse, Ginnie Mae I and Ginnie Mae II securities.) The $76 billion issued in the first quarter of FY 2014 is the lowest quarterly total since the 3rd quarter of FY2008. This reflects the decline in mortgage originations generally, especially refinancing.

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

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