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

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.

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