HREMIC Issuance 2016Q2: Nomura’s Run – and Increased Issuance Activity – Continues

HREMIC issuance for the first 6 months of 2016 was $5.4 billion, surpassing the first 6 months of 2015’s $4.3 billion, a previous high water mark. The industry is on pace to set its second consecutive annual issuance record. There were 14 transactions underwritten by four sponsors, Nomura, Bank of America Merrill Lynch, Barclays, and Royal Bank of Canada. Nomura remains the #1 issuer, with $3.3 billion, nearly equaling their 2015 full year total of $3.4 billion. Bank of America Merrill Lynch was second with $1.8 billion. Life-to-date BAML has issued 41% of all HREMICs, Nomura 20%, and Barclays 15%. This is the first HREMIC transaction for RBC.

Approximately 73% of outstanding HMBS securities have been resecuritized into HREMICs, up from 64% at the end of 2015. A stronger bid for the Interest-Only HREMIC classes emerged last year, and the seasoned HMBS pools we’ve referenced in past blogs are also contributing to the HREMIC volume uptick. The HREMIC structure, which allows issuers to create bond classes such as these “IO” securities, is increasingly the most profitable option.

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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