HMBS April 2018 Part II: Temporary Reprieve from Supply Shrinkage; Are We at Peak Mandatory Buyout?

May 10th, 2018

HMBS supply rose in April, increasing by nearly $360 million from $56.2 to $56.5 billion. High prepayments were outweighed by high issuance, including two large highly seasoned pools totaling $542 million. Without these seasoned pools, HMBS supply would have declined by over $180 million.

We noted in our previous blogs that reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Mortgages (“HECMs”) effective this fiscal year. The total for new pools backed by new loans was a measly $401 million, but with the seasoned pools and strong tail issuance HMBS securitization volume rose to $1.2 billion, the seventh highest HMBS monthly issuance level ever.

We estimate that negative amortization of outstanding pools totaled $210 million, slightly exceeding last month’s record. Despite the $1.057 billion in payoffs (5th highest ever), total outstanding HMBS float rose $358 million. Most of the payoffs were once again due to mandatory buyouts, in which the issuer buys out HMBS participations backed by HECM loans whose balances have reached 98% of their Maximum Claim Amount. Our friends at Recursion show about $676 million of the payoffs resulting from Mandatory Buyouts, the second highest total ever. However, for the second month in a row, this was a lower percentage of overall buyouts. This wave of buyouts is an echo of the very large issuance from 2009 through the first half of 2013, especially those backed by fixed rate HECMs with higher interest rates and higher initial PLFs. We may be at “Peak Buyout,” and see a relative decline in Mandatory Buyouts in the near future.

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

April 2018 HMBS: Perennials Bloom; New Growth Sparse

May 1st, 2018

HMBS issuers welcomed the sunshine of their perennial favorites: tail issuance and highly seasoned collateral, which made for a bountiful spring bloom in April. Last month’s tail pool issuance topped $260 million. With the help of over $542 million in highly seasoned pools, HMBS issuance rose to $1.2 billion, the 7th highest monthly level ever. The supply of highly seasoned, unsecuritized HECM loans is a rapidly melting iceberg, but it’s a big iceberg. Fannie Mae still has about $25 billion in HECMs on its books, years after ceasing its HECM loan purchases.

Despite this, reverse mortgage lenders face a prolonged period of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Mortgages (“HECMs”) effective this fiscal year. The supply of recently originated unsecuritized HECMs originated at the old PLFs is essentially exhausted, allowing the full effect of the new PLFs to hit hard. Higher interest rates will not help either, as they generally require lower PLFs.

Production of original new loan pools was $401 million, down even from March’s anemic $419 million, and down sharply from $604 million in February, $657 million in January, and $747 in December 2017. For the foreseeable future, this low level of new production may be the new normal.

April issuance divided into 63 original pools and 57 tail pools. 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. Tails are not from new loans, but they do represent new amounts lent. As we noted last month, tail HMBS issuance can generate profits for years, helping HMBS issuers in challenging periods like the long winter of discontent ahead.

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

Game of Loans II: HMBS Winter Wind Blows Away Supply

April 13th, 2018

HMBS supply shrank significantly in March, falling over $200 million from $56.4 to $56.2 billion. High prepayments and low issuance combined to drive down the total float. The sixth time HMBS supply has declined month to month, this is by far the largest such shrinkage.

Noted in our previous blog on March issuance, reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Loans (“HECMs”) effective this fiscal year. HMBS issuance fell to $626 million, the lowest monthly level since September 2014.

We estimate that negative amortization of outstanding pools totaled $210 million, a record. However, the meager issuance and nearly $1.036 billion in payoffs (5th highest ever) resulted in the $200 million reduction in total outstanding HMBS float.

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

2018Q1 HMBS Issuer Rankings – Seasoned Collateral Makes The Difference

April 2nd, 2018

RMF surged to the top of the leaderboard in 2018Q1, issuing almost $1.1 billion of HMBS securities for a 36.4% market share, $491 million over #2 AAG’s $587.2 million and 19.8% market share. RMF’s totals include the issuance of highly seasoned pools in February. FAR stays in third with $453 million issued and 15.3% market share. Ocwen Loan Servicing and Live Well Financial again round out the top five issuers. Ocwen issued $223 million for a 7.5% market share, and Live Well was fifth with $209 million issued for a 7% market share. The top five issuers accounted for 86% of all issuance, up 6% over last quarter. There were 15 active HMBS issuers in the first quarter.

The first quarter totaled $2.97 billion of HMBS, 28% of calendar 2017’s entire issuance, though this belies the true story. Unless highly seasoned HMBS becomes the norm, expect much lower volume for the remainder of 2018 due to the new PLF curves in effect since October. As we have noted previously, tail issuance will provide some profit stability to HMBS issuers to offset this slowdown. HMBS issuance volume totaled $10.5 billion for 2017, just $160 million shy of 2010’s record year of $10.7 billion; those are likely to remain in the record books for the foreseeable future.

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

HREMIC Issuance 2018Q1: Last Gasp for Volume

April 2nd, 2018

HREMIC issuance for the first quarter of 2018 was $2.97 billion, the highest quarterly issuance total since the fourth quarter of 2015’s $3 billion. This volume trend is unlikely to continue based on the slowdown in HMBS.  There were 5 transactions in the quarter underwritten by two sponsors, Nomura and Citigroup. For 2018Q1, Nomura issued $1.6 billion of securities and Citigroup issued $1.4 billion.

Nomura has become the perennial lead issuer of HREMICs, though life-to-date Bank of America Merrill Lynch remains #1 with $19.6 billion of HREMICs for a 35% market share.  Nomura has issued $16 billion for a 28% life-to-date market share. BAML did not issue any HREMIC securities in the first quarter.

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.

Game of Loans: Long HMBS Winter Just Getting Started

April 2nd, 2018

Winter goes on for years in Westeros, the mythic land featured in Game of Thrones. Even worse, the inhabitants of that land have no idea how long they must endure: past winters lasted for as many as 5 years. Similarly, reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Loans (“HECMs”) effective this fiscal year.

HMBS issuance fell to $626 million, the lowest monthly level since September 2014. The supply of unsecuritized HECMs originated at the old PLFs is essentially exhausted, allowing the full effect of the new PLFs to hit hard. No highly seasoned original pools were issued in March.

Production of original new loan pools was $420 million, down sharply from $604 million in February, $657 million in January and $747 in December 2017. For the foreseeable future, this low level of new production may be the new normal.

March issuance divided into 59 original pools and 56 tail pools. 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. Last month’s tail issuance was $206 million, consistent with recent months. Tails are not from new loans, but they do represent new amounts lent. Tail HMBS issuances can generate profits for years, helping HMBS issuers in challenging periods like this long winter of discontent.

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

February 2018: Record HMBS Month — But Trending Down

March 2nd, 2018

HMBS issuers sold a record 129 pools in February 2018, and posted the second highest dollar issuance, $1.47 billion. The dollar total is topped only by December 2009, at the peak of the old HECM regime’s fixed rate issuance boom. Two large highly seasoned original pools totaling $657 million were issued. February issuance divided into 73 original pools (also a record) and 56 tail pools. Without the two seasoned pools, total issuance would have been roughly in line with the average issuance over the last year.

However, the new Principal Limit Factors (“PLFs”) are reducing origination volume. Production of original new loan pools was down at $604 million, down from $657 million in January and $747 in December 2017. New production pools will probably continue to decrease as issuers run out their remaining supply of unsecuritized loans with the old, higher Principal Limit Factors.

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. Last month’s tail issuance was strong: about $209 million. Tails are not from new loans, but they do represent new amounts lent. HECM loans can generate profits through their monthly tails for years, helping HMBS issuers in challenging periods like this year.

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

New Year’s Resolution: Use HMBS Data Properly

February 11th, 2018

The HMBS market began 2018 much like it began 2017, with a month of just under $870 million in total new issuance and range bound in total outstanding float. This may change in 2018 as the new Principal Limit Factors (“PLFs”) start to reduce origination volume. In January, HMBS float rose by over $112 million dollars, helped by a dip in payoffs, which in turn was caused by a sharp decline in HECM refinancings. HMBS prepayments fell to $943 million, the lowest amount in 6 months. Issuers kept HMBS supply up with 111 new pools totaling $869 million.

January issuance divided into 60 original pools and 51 tail pools. No highly seasoned original new loan pools were issued. Production of original new loan pools was decent at $657 million, but is down from December’s big $747 million total. New production pools will probably continue to decrease as issuers run out of their remaining supply of unsecuritized loans with the old, higher PLFs.

However, new HMBS pools secured by new loans do not tell the whole story. Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail 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. Last month’s tail issuance was $212 million, consistent with the record pace of tail issuance in 2017. Tails are not from new loans, but they do represent new amounts lent. An active HECM loan can generate profits through its monthly tails for years, helping HMBS issuers in challenging periods like this year. Analysis that relies on unit-count endorsements or focuses only on original pools production does not give a complete picture of the industry’s health.

Last month, total outstanding HMBS rose by about $112 million from December. We estimate that last month’s change in HMBS balance was composed of over $187 million in negative amortization, plus the $869 million in new issuance, minus $944 million in payoffs. Payoffs have exceeded new issuance in 16 of the last 17 months.

Payoff figures were sharply lower in January, at an approximate 19% annual rate, driven more and more by seasoned HECM participations being liquidated from HMBS pools as they reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo crunched the numbers: the payoffs from 98% MCA assignments totaled approximately $619 million last month, the second highest total however. Mandatory 98% MCA purchases are approaching 70% of all HMBS payoffs. Recursion’s data also shows January HMBS payoffs due to refinancing falling below $43 million, the lowest amount since March 2016. This is a sharp decline from the $74 million average in 2017, but not surprising given rising rates and lower PLFs.

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

HMBS December 2017: It Is Better to Give New Issuance than to Receive Payoffs

January 14th, 2018

The HMBS market closed out 2017 with a strong month of new issuance but remains range bound in total size. Total HMBS float has been stuck between $54 billion and $56 billion for nearly two years, though this may change in 2018 as the new Principal Limit Factors (“PLFs”) start to reduce origination volume. In December HMBS float rose by over half a billion dollars, helped by the largest monthly issuance in nearly 8 years. HMBS Prepayments topped $1 billion, the 6th highest monthly payoff ever. Issuers kept HMBS supply levitating with 106 new pools totaling $1.35 billion.

December issuance divided into 53 original pools and 53 tail pools. Two highly seasoned original new loan pools were issued. Production of original new loan pools was a strong $748 million, reflecting the mad rush of origination at the end of FY 2017.

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. December’s tail issuance was strong: about $241 million.

Total outstanding HMBS rose by about $511 million from November. We estimate the change in HMBS balance was composed of over $186 million in negative amortization, plus the $1.35 billion in new issuance, minus $1.02 billion in payoffs. December broke a fifteen month streak in which payoffs exceeded new issuance.

Payoffs remained high in December, still above a 20% annual rate, as more seasoned HECM loans continue to liquidate as they reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo crunched the numbers: the payoffs from 98% MCA puts totaled approximately $590 million last month, down 25% from last month’s record.  Nonetheless, 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.

HREMIC Issuance 2017 Full Year: Volume Tails Off

January 4th, 2018

HREMIC issuance for 2017 was $9.24 billion, 6% behind 2016’s total of $9.86 billion, but still the third highest issuance year after 2016 and 2015. Fourth quarter volume was $1.93 billion, up 3% from 2017’s third quarter issuance of $1.87 billion.

There were 25 transactions underwritten by three sponsors, Nomura, Citigroup, and Bank of America Merrill Lynch. Nomura remains the #1 issuer for the full year with $4.2 billion. Citigroup was second with $3.2 billion, and Bank America Merrill Lynch was third with $1.8 billion. Life-to-date BAML has issued $19.6 billion of all HREMICs for a 36.7% market share, and Nomura has issued $14.4 billion for a 26.9% market share.

HREMIC volume in the second half of 2017 was off 30% from the first two quarters, suggesting investors are more comfortable owning HMBS outright than as structured securities. An increase in HECM prepayments disproportionately affects Interest-Only securities, which may help explain the volume drop.

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.