October 2017: HMBS Market Sees a Ghost

In a month where HECM lenders were haunted by the specter of lower Principal Limit Factors, the HMBS market froze with fright – again – at $55 billion in September. HMBS Prepayments topped $1 billion, the third highest monthly payoff ever. However, a record 15 issuers whistled past the graveyard with 107 new pools totaling over $913 million.

October issuance divided into 48 original pools and 59 tail pools. Two highly seasoned original new loan pools were issued. Production of original new loan pools was a healthy $615 million, a typical total for this year.

November issuance promises to be very interesting indeed, as pools are already being issued backed by some of the new lower PLF/lower interest rate loans.

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. October’s tail issuance was very strong: about $264 million, the third highest ever.

Last month, total outstanding HMBS grew by almost $40 million from September. We estimate that last month’s change in HMBS balance was composed of over $184.2 million in negative amortization, plus the $913 million in new issuance, minus $1.06 billion in payoffs. Last month’s payoffs were the third highest ever; payoffs have exceeded new issuance for fourteen months in a row.

Payoffs figure are still high, running above a 20% annual rate as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo crunched the numbers: the payoffs from 98% MCA puts again totaled approximately $614 million last month, the third 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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