HMBS April 2023 Part II: Still Waiting For … Oh Never Mind

HMBS payoffs fell in April, as Mandatory Purchases continued to rise and natural payoffs fell to less than 8% per annum. April payoffs totaled about $900 million, within the range of recent months. Outstanding HMBS fell slightly to $59.5 billion due to continued weak issuance.

Higher interest rates finally caught up with the HMBS market in 2022, driving down PLFs sharply. Big trouble came in the fourth quarter with the trend of declining home prices became more clear and widespread, RMF declaring bankruptcy, AAG selling its assets to FAR, and Ginnie Mae taking over RMF’s HMBS portfolio. In Ginnie Mae’s recent data release, “Ginnie Mae – Reverse Mortgage Funding 42” is now shown as the issuer of record for the 4,046 former RMF pools. About $300 million of Issuer 42’s portfolio paid off in April. Issuer 42 HMBS accounts for just over $20 billion, or just under 34% of all outstanding HMBS.

Might an “Issuer 43” take over this portfolio, or will it be a big melting iceberg like Fannie Mae’s HECM portfolio? Fannie Mae’s portfolio has dwindled from $75 billion to approximately $5 billion today, more than a decade after Fannie bought her last HECM. At a certain point, Issuer 42’s net cash flow will turn positive, with net loan payoffs exceeding borrower credit line draws and other advances. When that point is reached, Ginnie Mae might be tempted to follow her stepsister’s example, and be content to let its HMBS portfolio run off over several years.

When a HECM loan balance reaches 98% of its MCA, the HMBS issuer is required to buy the loans out of the HMBS pool, and then may assign the loan to HUD if the loan is not in default. This is effectively a prepayment event for the HMBS investor, even though the underlying HECM loan remains outstanding. According to our friends at Recursion, 56% of HMBS payoffs last month were due to Mandatory Purchase. Last month’s 98% MCA Mandatory Purchases totaled $507 million, the highest dollar total in over 3 years.

Including the Mandatory Purchases, HMBS paid off at a 17.0% annual rate in April, down from March’s 17.8% pace. Exclusive of Mandatory Purchases, the rate of HMBS payoffs has fallen significantly. HMBS payoffs resulting from underlying HECM loan payoffs, including payoffs due to mortality and refinancing, is about 7.4%, compared to 18.4% a year ago.

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

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