HMBS Shrinkage Takes Summer Vacation; Issuer Beach Getting Crowded

The HMBS market grew in July, featuring a new issuer and lower prepayments. HMBS prepayments fell below $1 billion as thirteen issuers created 109 pools in July totaling over $848 million. Longbridge Financial made its HMBS issuance debut with two pools totaling $54 million.

July issuance divided into 46 original pools and 63 tail pools. No seasoned original new loan pools were issued. Production of original new loan pools was a healthy $622 million, up from $571 million in the prior month.

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. July’s tail issuance was about $225 million, the highest total since January.

Last month, total outstanding HMBS grew by $63 million from June. We estimate that July’s change in HMBS balance was composed of over $186 million in negative amortization (a record), plus the $848 million in new issuance, minus $971 million in payoffs. July’s payoffs were the third highest ever; payoffs have exceeded new issuance for eleven months in a row.

Payoff figures are still high as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursonCo once again crunched the numbers: the payoffs from 98% MCA puts totaled approximately $576 million last month. This amount is down from last month but the overall trend has been a steady rise. According to Recursion, the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013. This probably means further shrinkage in HMBS float throughout 2017.

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

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