HMBS April 2020 Part II: Float Remains in Equilibrium Just Above $54 Billion

Outstanding HMBS rose by $185 million in April, as payoffs fell and issuance rose. Payoffs totaled approximately $800 million, down $50 million from last month. For several months, total outstanding HMBS has stayed at about $54 billion, in a state of equilibrium where new issuance and interest roll-up roughly equal payoffs.

In 2019, HMBS posted the lowest annual total in five years. Until last month, low interest rates and a higher lending limit boosted production significantly, while Mandatory Buyouts continue to fall. With the current Coronavirus pandemic crisis, financial markets are dislocated: will this upset the equilibrium at last?

We predicted continuing declines in Mandatory Buyouts, and April was case in point, with Buyout dollar volume again at its lowest level in nearly 5 years. “Peak Buyout” was an echo of the peak issuance from 2009 through the first half of 2013. Much of this production has already been repurchased by issuers, or repaid by borrowers. Many HECM loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), but Peak Buyout is long gone.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $400 million, the lowest amount in nearly 5 years. This continues the downward trend from the buyout peak in the third quarter of 2018, 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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