HMBS November 2017: Don’t Look Down

Last month the HMBS market impersonated the Coyote, holding an anvil of loan payoffs in mid-air but not falling. That will change soon when the full effect of new PLFs inevitably shrinks the outstanding HMBS float, which fell slightly in November despite the largest issuance in 15 months. HMBS prepayments topped $1.2 billion, the highest monthly payoff ever. 14 issuers kept HMBS supply levitating with 114 new pools totaling $989 million. Like the Acme Company, some of these issuers are introducing new products to address the shortcomings of the old.

November issuance divided into 53 original pools and 61 tail pools. No highly seasoned original new loan pools were issued. Production of original new loan pools was a whopping $755 million, reflecting the rush to close loans under the old PLFs.

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. Last month’s tail issuance was strong: about $233 million.

Last month, total outstanding HMBS fell by almost $94 million from October. We estimate the change in HMBS balance was composed of $184.6 million in negative amortization, plus the $989 million in new issuance, minus $1.267 billion in payoffs. Payoffs have exceeded new issuance for fifteen months in a row.

Payoff figures were very high in November, smashing records with a 24% annual rate as more seasoned HECM loans liquidated or reached 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo crunched the numbers: the payoffs from 98% MCA puts totaled approximately $791 million last month, by far the highest total ever. 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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