Archive for the ‘HMBS’ Category

HMBS April 2020: All Hail Tail Sales! April May be August Occasion or Slow March to Recovery

Friday, May 1st, 2020

HMBS issuance totaled $813 million in April 2020, with a recovery in tail pools leading the way. Beginning in March, the Coronavirus pandemic took its toll on the capital markets, reducing liquidity as lenders and investors pulled back: March’s meager tally of 77 pools was a six year low for number of HMBS pools issued. 86 pools were issued in April, more in line with past production. There were also three highly seasoned new issues totaling $74 million.

Reverse mortgage lenders weathered a long period of reduced new origination volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of FY2018. However, over the last year new production of HECMs and HMBS has slowly climbed back to its long-term average range of $500 – $600 million. With the past two months below that range, this resurgence is being tested.

April production of original new loan pools was about $470 million, compared to $455 million in March, $501 million in February, $550 million in January, $484 million in December 2019, and a mere $300 million in April 2019.

Last month’s tail pool issuances totaled $269 million, above the typical $200-$250 million range, reflecting pent-up supply from the March lows.

April issuance divided into 34 First-Participation or Original pools and 52 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. Tail HMBS issuance is essential for HMBS issuers to finance their monthly advances, such as borrower draws, FHA mortgage insurance premiums, etc.

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

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.

HMBS March 2020 Part II: Float Remains in Equilibrium Just Above $54 Billion

Wednesday, April 8th, 2020

Outstanding HMBS fell by $61 million in March, as payoffs rose and issuance fell. Payoffs totaled approximately $860 million, up $45 million from last month. Total outstanding HMBS has stayed at about $54 billion the last several months, in a state of equilibrium where new issuance and interest roll-up roughly equal payoffs.

In 2019, HMBS posted the lowest annual total in five years. Until last month, low interest rates and a higher lending limit boosted production significantly, while Mandatory Buyouts continue to fall. With the current Coronavirus pandemic, financial markets are dislocated. Will the crisis be the nudge that upsets this equilibrium?

We predicted continuing declines in Mandatory Buyouts, and March was a case in point, with Buyout dollar volume at its lowest level in nearly five years. “Peak Buyout” was an echo of the peak issuance from 2009 through the first half of 2013. Much of this production has already been repurchased by the issuers or repaid by borrowers. Many HECM loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), but Peak Buyout is long gone.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled just $402 million, a low also last seen five years ago. This continues the downward trend from the buyout peak in the third quarter of 2018, which averaged over $750 million in Mandatory Purchases per month.

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

2020Q1 HMBS Issuer League Tables – AAG Extends Its Lead

Thursday, April 2nd, 2020

AAG increased its lead in 2020Q1 HMBS issuer rankings, with $586.6 million of issuance and 28% market share. FAR moved up two places to second, with $412.6 million issued and 20% market share. RMF stayed in third with $358.8 million issued and 17% market share. PHH Mortgage aka Liberty Reverse Mortgage moved up a notch to fourth, with $312.2 million and 15% market share, and Longbridge slipped three places back to fifth with $228.2 million of issuance and 21% share. Regardless of order, these same five issuers accounted for almost 91% of all issuance this quarter, matching their Top-5 concentration high at year-end 2018. There were 13 HMBS issuers active during the quarter.

2020Q1 saw $2.09 billion of HMBS issued, down again from 2019Q4’s $2.28 billion, and 2019Q3’s $2.33 billion. With impact from the Coronavirus pandemic unknown, Q1 production is a meaningless metric to project annual volume. 2019 full year volume landed at $8.26 billion, off 14% from full year 2018. Total HMBS issuance in 2018 was $9.58 billion.

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

HMBS March 2020: Issuance Tails Off

Wednesday, April 1st, 2020

HMBS issuance totaled $625 million in March 2020, with a notable decline in tail pools accounting for much of the reduced volume. As the month wore on, the Coronavirus pandemic increasingly took its toll on the capital markets, reducing liquidity as lenders and investors pulled back. Only 77 pools were issued in March, nearly a six year low for number of HMBS pools issued. These included about $455 million of new unseasoned HECM first participation pools, reversing a strong upward trend in production. There were no highly seasoned new issues. Still, March 2020 beat March 2019, when HMBS issuers sold 88 pools totaling $558 million.

Reverse mortgage lenders weathered a long period of reduced new origination volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of FY2018. However, over the last year new production of HECMs and HMBS has slowly climbed back to its long-term average range of $500 – $600 million. The fallout from the pandemic will sorely test this resurgence.

The HMBS market totaled about $8.3 billion for calendar year 2019, down from $9.6 billion in 2018 and $10.5 billion in 2017. However, securitization of private reverse mortgages is a much bigger factor now. As a result, we estimate that the total issuance of reverse mortgage securities backed by new collateral in 2019 was about the same as 2018. This may not be the case in 2020, with at least two major private reverse mortgage programs suspended for the time being.

March’s production of original new loan pools was about $455 million, compared to $501 million in February, $550 million in January, $484 million in December, $506 million in November, $426 million in October, $393 million in September, $390 million in August, $321 million in July. It was barely $277 million one year ago in March 2019.

Last month’s tail pool issuances totaled $170 million, nearly a five year low, and well below the typical $200-$250 million range.

March issuance divided into 31 First-Participation or Original pools and 46 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. Tail HMBS issuance is essential for HMBS issuers to finance their monthly advances, such as borrower draws, FHA mortgage insurance premiums, etc.

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

HMBS February 2020: Low Interest Rates Send Valentine to HMBS Issuers

Monday, March 2nd, 2020

HMBS issuance totaled $707 million in February 2020, as lower rates continued to strengthen new production. 81 pools were issued in February, including about $501 million of new unseasoned HECM first participation pools, continuing a strong upward trend in production. There were no highly seasoned new issues. What a difference a year makes: February 2019 marked a five-year low when HMBS issuers sold 82 pools totaling $491 million.

Reverse mortgage lenders weathered a long period of reduced new origination volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of FY2018. However, over the last year new production of HECMs and HMBS has slowly climbed back to its long-term average range of $500 – $600 million.

The HMBS market totaled about $8.3 billion for calendar year 2019, down from $9.6 billion in 2018 and $10.5 billion in 2017. However, securitization of private reverse mortgages is a much bigger factor now. As a result, we estimate that the total issuance of reverse mortgage securities backed by new collateral in 2019 was about the same as 2018.

February’s production of original new loan pools was about $501 million, compared to $550 million in January, $484 million in December, $506 million in November, $426 million in October, $393 million in September, $390 million in August, $321 million in July, and barely $274 million in February 2019. Adjusted for day count, February 2020 continues the strong issuance pace of January 2020.
Last month’s tail pool issuances totaled $206 million, within the range of recent tail issuance.

January issuance divided into 33 First-Participation or Original pools and 48 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. Tail HMBS issuance can generate profits for years, helping HMBS issuers during challenging times.

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

HMBS January 2020 Part II: HMBS Float Remains in Equilibrium Just Above $54 Billion

Tuesday, February 11th, 2020

Outstanding HMBS rose by $15 million in January, as lower payoffs were balanced by a strong issuance month, including seasoned new issuance. Payoffs totaled approximately $900 million, down about $25 million from last month. Total outstanding HMBS hovers at $54 billion, an equilibrium in which new issuance and interest roll-up roughly equal payoffs.

In 2019, HMBS posted the lowest annual total in five years. However, low interest rates and now a higher lending limit have boosted production significantly, while Mandatory Buyouts continue to fall. How long this equilibrium will last is the question.

We predicted continuing declines in Mandatory Buyouts, and January was a case in point, with buyout dollar volume at its lowest level in nearly 5 years. “Peak Buyout” was an echo of the peak issuance from 2009 through the first half of 2013. Much of this production has already been repurchased by the issuers or repaid by borrowers. From now on, billion-dollar-plus payoff months will be the exception rather than the rule. Many HECM loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), but Peak Buyout is long gone.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $450 million, falling below 50% for the first time in nearly 5 years. This continues the downward trend from the buyout peak in the third quarter of 2018, which averaged over $750 million in Mandatory Purchases per month.

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

HMBS January 2020: Beginnings of a Happy New Year?

Monday, February 3rd, 2020

HMBS issuance totaled $760 million in January 2020, as lower rates continued to strengthen new production. 87 pools were issued in January, including about $550 million of new unseasoned HECM first participation pools, continuing a strong upward trend in production. There were no highly seasoned new issues. For comparison, HMBS issuers sold 97 pools totaling $614 million in January 2019.

Reverse mortgage lenders weathered a long period of reduced new origination volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of FY2018. However, over the last year new production of HECMs and HMBS has slowly climbed back to its long-term average range of $500 – $600 million.

The HMBS market totaled about $8.3 billion for calendar year 2019, down from $9.6 billion in 2018 and $10.5 billion in 2017. However, securitization of private reverse mortgages is a much bigger factor now. As a result, we estimate that the total issuance of reverse mortgage securities backed by new collateral in 2019 was about the same as 2018.

New production issuance is in a strong upward trend: January’s production of original new loan pools was about $550 million, compared to $484 million in December, $506 million in November, $426 million in October, $393 million in September, $390 million in August, $321 million in July, and barely $300 million in January 2019. Last month’s tail pool issuances totaled $210 million, within the range of recent tail issuance.

January issuance divided into 40 First-Participation or Original pools and 47 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. Tail HMBS issuance can generate profits for years, helping HMBS issuers during challenging times.

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

HMBS December 2019 Part II: Bye Bye (Peak) Buyout

Friday, January 10th, 2020

Outstanding HMBS rose $137 million in December, as lower payoffs were balanced by a strong issuance month, including seasoned new issuance. Payoffs totaled just over $950 million, about the same as November. Total outstanding HMBS now stands at just over $54 billion. For now, supply is in equilibrium, with new issuance and interest roll-up roughly equal to payoffs.

The direction of total HMBS float is now hard to predict given further trends. HMBS issuance in the first half of 2019 was the lowest six months of issuance in five years. In 2019, HMBS also posted the lowest annual total in five years. However, low interest rates and now a higher lending limit have boosted production significantly, while Mandatory Buyouts continue to fall. How long can this equilibrium last?

We predicted continuing declines in Mandatory Buyouts and December was a case in point, with buyout dollar volume at its lowest level in nearly 4 years. “Peak Buyout” was an echo of the peak issuance from 2009 through the first half of 2013. Much of this production has already been repurchased by the issuers or repaid by borrowers. From now on, billion-dollar-plus payoff months will be the exception rather than the rule. Many HECM loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), but Peak Buyout is long gone.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $476 million, or 51% of the total, the lowest percentage in almost 5 years. This continues the downward trend from the buyout peak in the third quarter of 2018, which averaged over $750 million in Mandatory Purchases per month.

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

HMBS December 2019: Stocking Half Full in 2018? Then Hang Two Stockings This Year

Friday, January 3rd, 2020

HMBS issuance totaled $908 million in December 2019, as lower rates continued to strengthen new production. 92 pools were issued in December, including about $484 million of new unseasoned HECM first participation pools, maintaining the high monthly total for new production this year. This month’s total was also helped by two large seasoned new issues, including a CMT-indexed pool. For comparison, HMBS issuers sold 95 pools totaling $619 million in December 2018.

Reverse mortgage lenders weathered a long period of reduced new origination volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of FY2018. Yet, with this month’s issuance, the HMBS market totaled about $8.3 billion for calendar year 2019. HMBS issuance totaled $9.6 billion in 2018 and $10.5 billion in 2017. However, securitization of private reverse mortgages was much higher than previous years. As a result, we estimate that the total issuance of reverse mortgage securities backed by new collateral was about the same as 2018.

Some other trends to watch in 2020:

What happens to LIBOR?
The industry relies heavily on the 12-month LIBOR index for its adjustable rate HECMs. LIBOR is scheduled to go away in 2021, and the plan to replace this index is not clear.

What happens to HECM?
HUD has already hinted at further change. Despite significant improvements in HECM performance over the last several years, restrictions on HECM to HECM refinancing and county level MCA limits are on the table. Are lower Principal Limit Factors also looming?

Will private reverse mortgage production surpass HECMs?
Private reverse mortgages, most of them jumbo-sized, now make up more than 25% of new origination by dollar volume. As HECM is cut back and new private products are introduced, can private RMs surpass HECM as the industry’s main product?

December’s production of original new loan pools was about $484 million, compared to $506 million in November, $426 million in October, $393 million in September, $390 million in August, and $321 million in July. Last month’s tail pool issuances totaled $220 million, within the range of recent tail issuance.
December 2019 issuance divided into 33 First-Participation or Original pools and 59 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. Tail HMBS issuance can generate profits for years, helping HMBS issuers during challenging times.

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