April 2018 HMBS: Perennials Bloom; New Growth Sparse

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.

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