February 2019: Groundhog Day for HMBS Market – Long Winter Ahead?

HMBS issuance fell in February 2019 to just under $491 million, the lowest issuance level in nearly 5 years. February issuance was consistent with the sharply lower issuance trend of recent months, made even weaker due to February’s low day count and lack of any highly seasoned pools. 82 pools were issued in February, including nearly $274 million of new, first participation pools. HMBS float shrinkage will continue as February’s payoffs are almost certain to outweigh new issuance and interest roll-up.

Reverse mortgage lenders face a new era of reduced volume, primarily due to the lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of Fiscal Year 2018. For the entire year of 2018, HMBS issuance totaled about $9.6 billion, compared to $10.5 billion in 2017. The HMBS market will be hard pressed to equal last year’s totals, which included some HMBS issuance backed by new HECM loans originated at higher PLFs.

Production of original new loan pools was about $274 million, down from $304 million in January and $277 million in December, and well below the $360 million issued in September 2018. Last month’s tail pool issuances totaled $217 million, within the range of recent tail issuance. By comparison, HMBS issuers sold 129 pools totaling $1.47 billion in February 2018.

February 2019 issuance divided into 35 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.

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