HMBS August 2022 Part II: Refi Retreat Takes a Holiday

HMBS prepayments leveled off in August, as the refinancing wave paused its retreat. August payoffs totaled just over $1 billion, the second lowest amount in 18 months. Outstanding HMBS rose to a record $59.1 billion, helped by a faster roll-up from rising interest rates.

The HECM refinance wave was assisted by a higher HECM lending limit (now $970,800) and surging home prices. Higher interest rates have finally caught up with the HMBS market, driving down principal limit factors (initial loan-to-value ratios) sharply.

In August HMBS paid off at slightly less than a 20% annual rate, versus about 18% in July, but adjusting for day count (23 versus 20 in August and July, respectively), August payoffs were slightly lower.

HMBS prepayment rates are bound to fall further in the remaining four months of 2022. Interest rates resumed their rise, and lenders report that “credit pulls” (indications from credit bureaus that borrowers may refinance), have fallen in recent weeks.

Our friends at Recursion broke down the prepayment numbers further: last month’s 98% MCA mandatory purchases totaled about 34% of the total, another recent monthly high.

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

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