Archive for the ‘HMBS Draws’ Category

New View Advisors Reverse Mortgage Draw Index March 2020: Dog Days Bite, but Don’t Bark

Wednesday, April 22nd, 2020

HMBS investors and issuers feared big draws in March. They worried that the widening crisis would panic reverse mortgage borrowers into a “run on the bank” mentality resulting in large draws on HECM Lines of Credit. This would increase the capital demands on HMBS issuers at a time when their own financing liquidity was decreasing. However, the latest GNMA data show that this was a dog that didn’t bark. Draw rates for March 2020 stayed well within historical averages, just as they did during the 2008-2009 Great Recession. Here are March 2020’s draw numbers, compared to past data, including January 2019 (our last published Draw Index) and March data from prior years:

In the table above, the index value is expressed as a monthly draw rate, equal to the amount of Line of Credit draws taken in any given month, divided by the Total Line of Credit Amount available at the beginning of that month. The index applies only to loans with a Line of Credit feature. Unseasoned Loans are defined as loans originated no more than 2 years ago, and Seasoned Loans as loans originated more than 2 years ago. Draws tend to be higher in the early years of a loan, then decline to a stable plateau as the loan matures. The draw amount for many HECM loans is restricted in the first year. As a result, the overall draw rate jumps materially in month 13 (a complete report showing draw rate by loan age month is available by subscription).

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

No June Gloom: HMBS Issuance and Supply Remain Steady

Sunday, July 17th, 2016

HMBS issuers created approximately $694 million in new HMBS pools during June 2016, with issuance totals typical of the post-Financial Assessment HECM origination market. Last month’s HMBS issuance total declined from May’s $857 million total and also June 2015’s $845 million. May’s total was bolstered by highly seasoned original issuance, and last June’s HMBS numbers were inflated by the pre-FA origination rush. Issuers sold 104 pools in June 2016, divided into 49 original pools and 55 tail pools. Original pools are those HMBS pools backed by the first participation in a previously uncertificated HECM loan, typically a recently originated HECM loan. Production of original new loan pools matched last month’s $449 million tally. No seasoned original pools were issued.

Total outstanding HMBS remains at about $54.3 billion, up only $29 million from May, the smallest increase in recent years. We estimate that June HMBS was composed of approximately $169 million in negative amortization, plus the $694 million in new issuance, minus a record $834 million in payoffs. Payoffs figure to climb still higher as more seasoned HECM loans liquidate or reach the 98% of Maximum Claim Amount threshold.

Original HMBS pools are created when a pool of FHA-insured Home Equity Conversion Mortgages (“HECMs”) is securitized for the first time. Tail HMBS issuances are HMBS pools created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance.  Tail Issuance strengthened to about $244 million, up from May’s total of $211 million.  This appears to be the new issuance range for the industry: new production between $400-$500 million per month, tail issuance of just above $200 million per month, plus the occasional seasoned loan HMBS securitization.

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

New View Advisors Reverse Mortgage Draw Index: January 2016

Tuesday, February 16th, 2016

New View Advisors is pleased to release the January 2016 Reverse Mortgage Draw Index. The latest Ginnie Mae data for Monthly Adjustable HECMs show a steady draw rate of 1.91%, and that Annual Adjustable draw rates were 1.86%, both consistent with previous months.

Our index values for Monthly Adjustable Rate HECM loans during the last 6 months are:

Our index values for Annual Adjustable Rate HECM loans during the last 6 months are:

In the tables above, the index value is expressed as a monthly draw rate, equal to the amount of Line of Credit draws taken in any given month, divided by the Total Line of Credit Amount available at the beginning of that month. The index applies to loans with a Line of Credit feature, and does not include fixed monthly “Term” or “Tenure” payments. Unseasoned Loans are defined as loans originated no more than 2 years ago, and Seasoned Loans as loans originated more than 2 years ago.

Each month, Ginnie Mae releases pool level and loan level data on their HMBS securities and the loans underlying those securities. This comprehensive Ginnie Mae data repository enables a greater understanding of the underlying loan characteristics and behavior that drive performance within the reverse mortgage industry. Prepayment, Default, and Draw behavior are the Big Three of Reverse Mortgage performance indicators.

Draw behavior depends on several factors, but for investors, lenders, and HMBS issuers none is more important than loan age. The draw rate affects prepayment rates, HMBS “Tail” issuance, even frequency and severity of defaults. For all market participants, an accurate measure of draw rates is essential for managing cash flow, forecasting future capital needs and profitability, and measuring enterprise risk.

Draw rates follow the loan life cycle: draws tend to be higher in the early years of a loan, then decline to a stable plateau as the loan matures.  The draw amount for many HECM loans is restricted in the first year, a program change introduced by FHA for FY2014.  As a result, the overall draw rate jumps materially in month 13 (a complete report showing draw rate by loan age month is available by subscription).  Annual adjustable loans are a relatively new product; only a handful of these loans are seasoned more than 2 years.  However, each month a larger and larger number of annually adjustable loans reach the expiration of the restricted draw period.  As a result, the Annual Adjustable loan draw rates are converging with the Monthly Adjustable Rates.

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

New View Advisors Reverse Mortgage Draw Index: November 2015

Monday, December 21st, 2015

New View Advisors is pleased to release the third installment of its Reverse Mortgage Draw Index, including the second release of our Annual Adjustable Draw Index. The latest Ginnie Mae data for Monthly Adjustable HECMs show a steady draw rate of 2.01% in November, consistent with previous months. The data also show that Annual Adjustable draw rates were 1.91% in November, compared to 1.89% in October, consistent with and converging to Monthly Adjustable HECM draw rates.

Our index values for Monthly Adjustable Rate HECM loans during the last 4 months are:

Our index values for Annual Adjustable Rate HECM loans during the last 4 months are:

In the table above, the index value is expressed as a monthly draw rate, equal to the amount of Line of Credit draws taken in any given month, divided by the Total Line of Credit Amount available at the beginning of that month. The index applies to loans with a Line of Credit feature, and does not include fixed monthly “Term” or “Tenure” payments. Unseasoned Loans are defined as loans originated no more than 2 years ago, and Seasoned Loans as loans originated more than 2 years ago.

Each month, Ginnie Mae releases pool level and loan level data on their HMBS securities and the loans underlying those securities. This comprehensive Ginnie Mae data repository enables a greater understanding of the underlying loan characteristics and behavior that drive performance within the reverse mortgage industry. Prepayment, Default, and Draw behavior are the Big Three of Reverse Mortgage performance indicators.

We estimate that existing HECM loans securitized into HMBS are generating about $205 million in “Tails,” consisting of approximately $96 million in line of credit draws each month in the monthly adjustable segment, $31 million in the annual adjustable product segment, $53 million per month in Mortgage Insurance Premium (“MIP”) advances, $10 million Term/Tenure Draws, and $15 million in excess spread. The excess spread, or “Servicing Fee Margin,” represents the excess of the HECM loan interest rate over the HMBS interest or “Participation” rate, generally 0.36% per annum. The issuer’s net excess is 0.30%, as Ginnie Mae’s HMBS insurance fee is 6 basis points. Because these new Tail issuances generally sell at a premium, HMBS Tails are a crucial component of industry profitability.

Draw behavior depends on several factors, but for investors, lenders, and HMBS issuers none is more important than loan age. The draw rate affects prepayment rates, HMBS “Tail” issuance, even frequency and severity of defaults. For all market participants, an accurate measure of draw rates is essential for managing cash flow, forecasting future capital needs and profitability, and measuring enterprise risk.

Draw rates follow the loan life cycle: draws tend to be higher in the early years of a loan, then decline to a stable plateau as the loan matures. The draw amount for many HECM loans is restricted in the first year, a program change introduced by FHA for FY2014. As a result, the overall draw rate jumps materially in month 13 (a complete report showing draw rate by loan age month is available by subscription). This explains why 12 month adjustable draw rates are lower but converging with the Monthly Adjustable Loans. Annual adjustable loans are a relatively new product; only a handful of these loans are seasoned more than 2 years. However, each month a larger and larger number of annually adjustable loans reach the expiration of the restricted draw period. As a result, the Annual Adjustable loan draw rates are converging with the Monthly Adjustable Rates.

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

New View Advisors Reverse Mortgage Draw Index: Introducing Our Annual Adjustable Index

Tuesday, December 8th, 2015

New View Advisors is pleased to release the second installment of its Reverse Mortgage Draw Index, including the first release of our Annual Adjustable Draw Index. The latest Ginnie Mae data for Monthly Adjustable HECMs show a steady draw rate of 1.92% in October, consistent with the 2.12% and 1.93% rates of September and August, respectively. The data also show that Annual Adjustable draw rates were 1.89% in October, consistent with and converging to Monthly Adjustable HECM draw rates.

Our index values for Monthly Adjustable Rate HECM loans during the last 3 months are:

Our index values for Annual Adjustable Rate HECM loans during the last 3 months are:

In the table above, the index value is expressed as a monthly draw rate, equal to the amount of Line of Credit draws taken in any given month, divided by the Total Line of Credit Amount available at the beginning of that month. The index applies to loans with a Line of Credit feature, and does not include fixed monthly “Term” or “Tenure” payments. Unseasoned Loans are defined as loans originated no more than 2 years ago, and Seasoned Loans as loans originated more than 2 years ago.

Each month, Ginnie Mae releases pool level and loan level data on their HMBS securities and the loans underlying those securities. This comprehensive Ginnie Mae data repository enables a greater understanding of the underlying loan characteristics and behavior that drive performance within the reverse mortgage industry. Prepayment, Default, and Draw behavior are the Big Three of Reverse Mortgage performance indicators.

For HECM loans securitized into HMBS, we estimate that the industry is funding approximately $95 million in line of credit draws each month in the monthly adjustable segment, and about $28 million in the annual adjustable product segment. For these same loans, we estimate the industry makes about $52 million per month in Mortgage Insurance Premium (“MIP”) advances, funds about $10 million Term/Tenure Draws, and earns about $15 million in excess spread. This adds up to $200 million, which squares nicely with the issuance of HMBS “Tails,” also running at about $200 million each month. These Tail HMBS are a crucial component of industry profitability.

Draw behavior depends on several factors, but for investors, lenders, and HMBS issuers none is more important than loan age. The draw rate affects prepayment rates, HMBS “Tail” issuance, even frequency and severity of defaults. For all market participants, an accurate measure of draw rates is essential for managing cash flow, forecasting future capital needs and profitability, and measuring enterprise risk.

Draw rates follow the loan life cycle: draws tend to be higher in the early years of a loan, then decline to a stable plateau as the loan matures. The draw amount for many HECM loans is restricted in the first year, a program change introduced by FHA for FY2014. As a result, the overall draw rate jumps materially in month 13 (a complete report showing draw rate by loan age month is available through subscription). This explains why 12 month adjustable draw rates are lower but converging with the Monthly Adjustable Loans. Annual adjustable loans are a relatively new product; only a handful of these loans are seasoned more than 2 years. However, each month a larger and larger number of annually adjustable loans reach the expiration of the restricted draw period. As a result, the Annual Adjustable loan draw rates are converging with the Monthly Adjustable Rates.

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

Introducing the New View Advisors Reverse Mortgage Draw Index

Tuesday, October 20th, 2015

New View Advisors is pleased to announce the introduction of its Reverse Mortgage Draw Index. The New View Advisors Reverse Mortgage Prepayment Index has become the industry standard since its introduction in 2010. Ginnie Mae’s HMBS program was then in its infancy, but now dominates the HECM industry. Each month, Ginnie Mae releases pool level and loan level data on their HMBS securities and the loans underlying those securities. This increasingly comprehensive Ginnie Mae data repository enables a greater understanding of the underlying loan characteristics and behavior that drive performance within the reverse mortgage industry. Prepayment, Default, and Draw behavior are the Big Three of Reverse Mortgage performance indicators.

Draw behavior depends on several factors, but for investors, lenders, and HMBS issuers none is more important than loan age. The draw rate affects prepayment rates, HMBS “Tail” issuance, even frequency and severity of defaults. For all market participants, an accurate measure of draw rates is essential for managing cash flow, forecasting future capital needs and profitability, and measuring enterprise risk.

Draw rates follow the loan life cycle: draws tend to be higher in the early years of a loan, then decline to a stable plateau as the loan matures. The draw amount for many HECM loans is restricted in the first year, a program change introduced by FHA for FY2014. As a result, the overall draw rate jumps materially in month 13 (a complete report showing draw rate by loan age is available through subscription). The index value is expressed as a monthly draw rate, equal to the amount of Line of Credit draws taken in any given month, divided by the Total Line of Credit Amount available at the beginning of that month. The index applies to loans with a Line of Credit feature, and does not include fixed monthly “Term” or “Tenure” payments.

Our index values for August and September 2015 are:

Unseasoned Loans are defined as loans originated no more than 2 years ago, and Seasoned Loans as loans originated more than 2 years ago. Our initial release pertains only to Monthly Adjustable Rate HECM loans that have been collateralized into Ginnie Mae HMBS. The vast majority of these loans have 1-Month LIBOR as their underlying index, but a few are based on the 1-Month Constant Maturity Treasury “CMT” index. A 12-month LIBOR loan index will be introduced in a subsequent release.

We estimate the industry is funding between $90 – $100 million in draws each month for this product segment, which accounts for about one third of outstanding HMBS. These draw amounts are then securitized by Ginnie Mae issuers into “Tail” HMBS, an increasingly important component of industry profitability.

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