HMBS Market Chases Its Tails

HMBS issuers created $507 million in new HMBS pools during July 2014, the fifth smallest monthly HMBS issuance since May 2009, but up from last month’s $439 million. 85 pools were issued, consisting of 42 original issuances and 43 tail pools. By comparison, HMBS issuance totaled $795 million in July 2013, and averaged nearly $800 million per month during 2013. Thus far in 2014, HMBS issuance is averaging only $520 million per month. Life-to-date through July 2014, $52.3 billion of HMBS have been issued, of which $48.5 billion are currently outstanding. Net outstandings increased approximately $300 million over June 2014.

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. Tail Issuances helped, accounting for about $149 million, up $28 million from June. Total tail issuance could reach $200 million per month by year’s end, a welcome source of profitability to the reverse mortgage industry.

Newly originated loans comprise a large majority of HMBS issuance in any given month. As a result, HMBS issuance is a 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 reduced HMBS production. However, beginning August 2014, FHA published new tables that raised select principal limits for HECMs at current market interest rates. If interest rates stay low, this may increase HMBS issuance for the remainder of 2014.

Overall Ginnie Mae issuance is down significantly too, with $26 billion issued in June 2014, compared to an average of $38 billion per month in FY 2013. However, that represents the third consecutive month of increasing Ginnie Mae issuance. 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.

Comments are closed.