HREMIC 2014 First 9 Months – Where Have All the Sponsors Gone?

HREMIC issuance for the first 9 months of 2014 was $3.75 billion, with 19 transactions underwritten by 4 different sponsors.  Bank of America Merrill Lynch remains the market leader with a 44% market share, issuing a little over $1.6 billion of HREMICs, $630.3 million of which was in the third quarter.  RBS was second with 4 issuances totaling $932.6 million, and Nomura was third with 4 transactions for $693.3 million.  Nomura issued $557.9 million of HREMICs in the third quarter; Stifel issued none.

Issuance remains on pace with 2013, but the bigger story is fewer sponsors. BAML and Nomura were responsible for 86% of third quarter activity, with RBS issuing just one HREMIC for $190.8 million.  Cantor Fitzgerald last issued HREMICs in 2011, Deutsche Bank in 2012, and Barclays in 2013.  With Stifel’s likely departure from reverse mortgages last month, and Knight Capital’s exit last year, the industry is down to just three HREMIC sponsors, BAML, Nomura, and RBS.

HREMIC collateral consists of HMBS, which are Ginnie Mae guaranteed pass-through securities.  HMBS are backed by pools of participations of HECMs, which are FHA-insured reverse mortgages.  This double layer of government guarantee, combined with the relatively high coupon and favorable prepayment patterns of the underlying loans, results in very favorable execution, even when compared to other Ginnie Mae “forward mortgage” securities.

New View Advisors compiled these rankings from publicly available Ginnie Mae data.

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