HMBS April 2024 Part II: Not so FAR away

Total HMBS payoffs in April showed a slight increase over March; overall prepayment speeds increased to 17.9% per annum from February’s 17.6% per annum. Outstanding HMBS decreased to $58.4 billion.

As mentioned in previous blogs, Ginnie Mae took over RMF’s HMBS portfolio in December 2022. “Ginnie Mae – Reverse Mortgage Funding 42” remains as issuer of record for 4,001 former RMF pools. About $334 million of Issuer 42’s portfolio paid off in April, but Issuer 42 still accounts for $17.20 billion, or about 29.4% of all outstanding HMBS. Issuer 42 has not issued any tail pools; we estimate Issuer 42 still has over $1 billion uncertificated position, that is, the excess of their portfolio’s HECM asset balance over the balance of their HMBS liability.

Finance of America is the issuer of record of $17.16 billion, also about 29.4% of all outstanding HMBS. With Issuer 42 not issuing tail pools, Finance of America will likely replace Ginnie Mae as the top Issuer in May.

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, payoffs last month due to Mandatory Purchases occurred at a rate of 9.8% per annum compared to March’s 9.5% per annum.

Including the Mandatory Purchases, HMBS paid off at a 17.9% annual rate in April, and 17.3% over the last 12 months. Exclusive of Mandatory Purchases, the rate of HMBS payoffs over the past 12 months is well below the prior 12 months. Natural payoffs (those other than Mandatory Purchases) for the 12 month period ending April 30th were 7.4% per annum, compared to 10.3% for the prior 12 month period.

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

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