HMBS August 2020: Summer of Love for New Issuance

HMBS issuance totaled $859 million in August 2020, marking another banner month. Helped by a recovered capital market and low interest rates, HMBS issuers continued a streak of robust production. 80 pools were issued in August.

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. But HECM production steadily recovered, and now new production of HMBS exceeds its long-term average range of $500 – $600 million. Helped not only by historically low interest rates, but also lower default rates and the reemergence of proprietary loans, the reverse mortgage market is stronger than ever. However, this strength may soon be challenged by economic conditions and the transition out of LIBOR.

So far, $6.7 billion in HMBS has been issued in 2020, on track to beat not only last year’s total of $8.3 billion for calendar year 2019, but probably 2018’s $9.6 billion total. Even 2017’s total issuance of $10.5 billion is in reach with a few more months of strong production. Also, securitization of private reverse mortgages is a much bigger factor in overall origination volume. We estimate the total issuance of reverse mortgage securities backed by new collateral in 2019 was about the same as 2018. Private reverse mortgage lenders that suspended programs have resumed lending, and private label securitizations are being placed by multiple issuers.

August production of original new loan pools was about $666 million, down slightly from July’s $691 million, but nonetheless impressive compared to $593 million in June, $586 million in May, $470 million in April, $455 million in March, $501 million in February, and a mere $390 million in August 2019.

Last month’s tail pool issuances totaled $193 million, again below the typical $200-$250 million range.

August issuance divided into 34 first-participation or original pools and 46 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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