December HMBS 2018 Part II: Fixed A-Fixin’ For Extinction (Or At Least Constriction) Due To HUD Restrictions

HMBS float fell again in December as big payoffs continued to outweigh falling issuance.  With just over $900 million in payoffs, total outstanding HMBS ended the month at $55.1 billion, down from about $55.3 billion at the end of November.  HMBS float has been range-bound between just under $55 billion to $57 billion for over two years.

Fixed Rate HMBS, which once reigned as King of all HMBS Product Types, has shrunk to just over $13 billion in outstanding float, down from $19.1 billion at year-end 2017 and $24.8 billion at the end of 2016.  Barely $1 billion in fixed rate HMBS was issued in 2018. This is the result of HECM program changes that severely restricted the full Principal Limit initial borrowing, the staple of fixed rate HECM.

As noted last week, HMBS issuance was only about $619 million in December, including a few highly seasoned new issues.

We predict continuing declines in Mandatory Buyouts in the foreseeable future. “Peak Buyout” was an echo of the issuance from 2009 through the first half of 2013.  Much of this production has now been repurchased or repaid by borrowers. Although many loans continue to reach their buyout threshold equal to 98% of their Maximum Claim Amount (“MCA”), Peak Buyout appears to have ended.  Going forward, billion-dollar-plus payoff months will be the exception rather than the rule.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases accounted for $625 million, or about 68%, of the payoffs last month.  This is down $40 million from November, and continues a generally downward trend from the third quarter, 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.

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