The HMBS market shrank again in May, with a huge prepayment wave outweighing an otherwise strong month of new issuance. Nearly 2% of outstanding HMBS supply paid off as HMBS prepayments exceeded $1 billion for the first time. Issuers created 111 pools in May totaling over $768 million. April issuance divided into 48 original pools and 63 tail pools. No seasoned original new loan pools were issued. Production of original new loan pools was a healthy $543 million, consistent with recent production.
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. May’s tail issuance was about $225 million, also consistent with recent production.
Last month, total outstanding HMBS shrank by a record $72 million from April to approximately $55.1 billion. We estimate last month’s change in HMBS balance was composed of approximately $181 million in negative amortization (a record), plus the $768 million in new issuance, minus the record $1.02 billion in payoffs. Payoffs have now exceeded new issuance for nine months in a row.
Payoffs figure to continue their climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo once again crunched the numbers: the payoffs from 98% MCA assignments totaled a record $580 million last month, 56.9% of payoffs. This amount has been rising steadily. 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.