HECM Mortgage-Backed Securities (“HMBS”) issuance fell in October to $824 million, falling for the sixth straight month as higher interest rates continued to take their toll. HMBS issuance remained below $1 billion for only the third time in 19 months.

With ten months in the books and nearly $12.5 billion issued, HMBS is on pace to set another new volume record in 2022. However, for the foreseeable future higher interest rates will challenge the reverse mortgage market, driving down home values and the Principal Limit Factors (“PLFs”) that determine how much HECM lenders can lend against those home values.

October’s original (first participation) production fell to $607 million, down from $744 million in September, $749 million in August, and significantly below July’s $975 million, June’s $1.1 billion, and May’s $1.2 billion, and less than half April’s record $1.4 billion in new issuance. October’s original new loan pool production was also much less than October 2021, when approximately $1.07 billion in original new HMBS pools were issued.

84 pools were issued in October: 37 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 is essential for HMBS issuers to finance their monthly advances, such as borrower draws and FHA mortgage insurance premiums. Last month’s tail pool issuances totaled $216 million, within the typical range.

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

HMBS payoffs fell again in September, as the refinancing wave resumed its retreat. September payoffs totaled about $948 million, the lowest amount in 19 months. Outstanding HMBS rose to a record $59.3 billion due to a faster roll-up from rising interest rates and the drop in payoffs.

The HECM refinance wave was assisted by a higher HECM lending limit or Maximum Claim Amount (“MCA,” now $970,800) and surging home prices. Higher interest rates have finally caught up with the HMBS market, driving down principal limit factors (initial loan-to-value ratios) sharply.

September HMBS paid off at a 17.6% annual rate, only the second 1-month payoff rate below 20% in over a year. The natural rate of payoffs is falling rapidly. Natural HMBS payoffs result from underlying HECM loan payoffs, including HECM loan payoffs due to mortality and refinancing and excluding Mandatory Purchases (see below). Natural HMBS payoffs are barely half of what they were a year ago and are bound to fall further, perhaps sharply, in the fourth quarter.

As interest rates rise, HECM loans hit their 98% MCA threshold faster. When a HECM loan balance reaches 98% MCA, the HMBS issuer is required to buy these loans out of the HMBS pool. Although this is effectively a prepayment event for the HMBS investor, the HECM loan remains outstanding. Our friends at Recursion broke down the prepayment numbers further: 40% of HMBS payoffs last month were due to Mandatory Purchase. Last month’s 98% MCA mandatory purchases totaled $363 million, the highest total in nearly 2 ½ years.

While 2021 is the current issuance volume recordholder with $13.2 billion of HMBS issued, that record may still fall: over $11.6 billion was issued in the first nine months of 2022.

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

AAG is still the #1 HMBS issuer in Q3, with $2.588 billion HMBS and 22.2% market share. FAR remains close behind in second, issuing $2.361 billion for a 20.3% market share. Longbridge stays in third with $2.128 billion issued and 18.3% market share, RMF is still fourth with $1.995 billion issued and 17.1% market share, and PHH rounds out the Top Five again, with $1.508 billion issued for a 12.9% market share.

The Top Five issuers accounted for 91% of all HMBS issuance, down two percent from last quarter. Cherry Creek returned to the market issuing $80 million during the quarter and increasing the number of issuers back to 13. Mutual of Omaha Mortgage moved up another notch to #6, continuing its issuance trend, also helping to explain the continued drop in aggregate volume for the Top Five issuers.

2022Q3 saw $3.15 billion of HMBS issued, down a significant 29% from last quarter’s record $4.42 billion, breaking the six consecutive quarters record issuance streak. However, as mentioned in recent blogs, even with the anticipated issuance slowdown, total 2022 volume could still surpass 2021’s $13.2 billion issuance record.

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

HECM Mortgage-Backed Securities (“HMBS”) issuance fell in September to $966 million, falling for the fifth straight month as higher interest rates continued to take their toll. HMBS issuance remained below $1 billion for only the second time in 18 months.

With nine months in the books and over $11.6 billion issued, HMBS is still on pace to eclipse 2022’s record $13.2 billion issuance total. However, for the foreseeable future higher interest rates will challenge the reverse mortgage market, driving down home price appreciation and the Principal Limit Factors that determine how much HECM originators can lend against those likely-falling home values.

September’s original (first participation) production fell to $744 million, slightly below August’s $749 million, but significantly below July’s $975 million, June’s $1.1 billion, May’s $1.2 billion, and barely half April’s record $1.4 billion in new issuance. September’s original new loan pool production was also much less than that of September 2021, when approximately $1.03 billion in original new HMBS pools were issued.

90 pools were issued in September: 42 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 is essential for HMBS issuers to finance their monthly advances, such as borrower draws and FHA mortgage insurance premiums. Last month’s tail pool issuances totaled $222 million, within the typical range.

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

HMBS prepayments leveled off in August, as the refinancing wave paused its retreat. August payoffs totaled just over $1 billion, the second lowest amount in 18 months. Outstanding HMBS rose to a record $59.1 billion, helped by a faster roll-up from rising interest rates.

The HECM refinance wave was assisted by a higher HECM lending limit (now $970,800) and surging home prices. Higher interest rates have finally caught up with the HMBS market, driving down principal limit factors (initial loan-to-value ratios) sharply.

In August HMBS paid off at slightly less than a 20% annual rate, versus about 18% in July, but adjusting for day count (23 versus 20 in August and July, respectively), August payoffs were slightly lower.

HMBS prepayment rates are bound to fall further in the remaining four months of 2022. Interest rates resumed their rise, and lenders report that “credit pulls” (indications from credit bureaus that borrowers may refinance), have fallen in recent weeks.

Our friends at Recursion broke down the prepayment numbers further: last month’s 98% MCA mandatory purchases totaled about 34% of the total, another recent monthly high.

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

HECM Mortgage-Backed Securities (“HMBS”) issuance dropped in August to $988 million, falling for the fourth straight month as higher interest rates continued to take their toll. HMBS issuance fell below $1 billion for the first time in 17 months.

HMBS issuance totaled $13.2 billion for 2021, easily surpassing the previous record set in 2010. With eight months in the books and over $10 billion issued, HMBS is still on pace to set another new record in 2022.

August’s original (first participation) production fell to $749 million, significantly below July’s $975 million, $1.1 billion in June, $1.2 billion in May and barely half of April’s record $1.4 billion in new issuance. August’s original new loan pool production was also less than that of August 2021, when approximately $880 million in original new HMBS pools were issued.

87 pools were issued in June: 39 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 is essential for HMBS issuers to finance their monthly advances, such as borrower draws and FHA mortgage insurance premiums. Last month’s tail pool issuances totaled $239 million, within the typical range.

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

HMBS payoffs fell again in July, as the refinancing wave continued its retreat. July payoffs totaled about $1 billion, the lowest amount in 17 months. Outstanding HMBS rose to a record $59 billion due to a combination of fairly strong new issuance, a faster roll-up from rising interest rates and the drop in payoffs.

The HECM refinance wave was assisted by a higher HECM lending limit (now $970,800) and surging home prices. Higher interest rates have finally caught up with the HMBS market, driving down principal limit factors (initial loan-to-value ratios) sharply.

In July HMBS paid off at an 18% annual rate, the first 1-month payoff rate below 20% in over a year, but still above historical averages. HMBS prepayment rates are bound to fall further in the third quarter.

2021 broke all previous records with a $13.2 billion HMBS issuance total. 2021’s record may still fall: over $9.7 billion was issued in the first seven months of 2022.

Our friends at Recursion broke down the prepayment numbers further: last month’s 98% MCA mandatory purchases totaled $303 million, 31% of the total, the highest percentage in a year and a half.

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

HECM Mortgage-Backed Securities (“HMBS”) issuance fell in July to $1.2 billion, falling for the third straight month as the refinancing wave continued to ebb. Production remains strong by historical standards, but the downward trend is clear.

HMBS issuance totaled $13.2 billion for 2021, easily surpassing the old record from 2010. With seven months in the books and over $9 billion issued, HMBS is still on pace to set another new record in 2022.

July’s original (first participation) production fell to $975 million, compared to $1.1 billion in June, $1.2 billion in May and well below April’s record of $1.4 billion in new issuance. Still, July’s original new loan pool production exceeded that of July last year, when approximately $937 million in original new HMBS pools were issued.

July’s 94 pools broke down into 49 first-participation or original pools, and 45 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 and FHA mortgage insurance premiums. Last month’s tail pool issuances totaled $216 million, within the typical range.

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

HMBS payoffs fell in June, as the refinancing wave finally began its retreat. June payoffs totaled just over $1.1 billion, the lowest amount in over a year. Outstanding HMBS rose to a record $58.6 billion due to continued strong new issuance and a faster roll-up from rising interest rates.

The HECM refinance wave was assisted by the higher HECM lending limit (now $970,800) and surging home prices (nearly 20% year-over-year, according to some measures). Higher interest rates have finally caught up with the HMBS market, driving down principal limit factors (initial loan-to-value ratios) sharply.

June’s $1.1 billion payoff represents a 21% annual rate, still high by historical standards but bound to fall further in the third quarter. Given the lag between HECM loan origination and HMBS issuance, the new HECMs backing June’s HMBS pools still do not fully reflect the rapid rise in interest rates.

Our friends at Recursion broke down the prepayment numbers further: last month’s 98% MCA mandatory purchases totaled $279 million, 25% of the total.

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

AAG remained the #1 HMBS issuer in Q2, with $1.848 billion issued and 21.7% market share, though FAR was less than $12 million away, issuing $1.836 million for a 21.6% market share. Longbridge remained in third with $1.558 billion issued and 18.3% market share, RMF stayed in fourth with $1.507 billion issued and 17.7% market share, and PHH rounded out the Top Five again with $1.150 billion issued for a 13.5% market share.

The Top Five issuers accounted for 93% of all HMBS issuance, down a percent from previous quarters. The same 12 HMBS issuers were again active in the quarter. Mutual of Omaha Mortgage moved up four notches to #7, its largest HMBS issuance tally to date, also explaining the slight drop in aggregate issuance volume for the Top Five issuers.

2022Q2 saw $4.43 billion of HMBS issued, up 9% from last quarter’s record $4.08 billion, and the sixth consecutive quarterly issuance record. That run may be over. However, as mentioned in past blogs, even with the anticipated issuance slowdown in the second half, total 2022 volume could still surpass 2021’s $13.2 billion issuance record.

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