Game of Loans: Long HMBS Winter Just Getting Started

Winter goes on for years in Westeros, the mythic land featured in Game of Thrones. Even worse, the inhabitants of that land have no idea how long they must endure: past winters lasted for as many as 5 years. Similarly, reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Loans (“HECMs”) effective this fiscal year.

HMBS issuance fell to $626 million, the lowest monthly level since September 2014. The supply of unsecuritized HECMs originated at the old PLFs is essentially exhausted, allowing the full effect of the new PLFs to hit hard. No highly seasoned original pools were issued in March.

Production of original new loan pools was $420 million, down sharply from $604 million in February, $657 million in January and $747 in December 2017. For the foreseeable future, this low level of new production may be the new normal.

March issuance divided into 59 original pools and 56 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. Last month’s tail issuance was $206 million, consistent with recent months. Tails are not from new loans, but they do represent new amounts lent. Tail HMBS issuances can generate profits for years, helping HMBS issuers in challenging periods like this long winter of discontent.

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

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