HMBS December 2019 Part II: Bye Bye (Peak) Buyout

Outstanding HMBS rose $137 million in December, as lower payoffs were balanced by a strong issuance month, including seasoned new issuance. Payoffs totaled just over $950 million, about the same as November. Total outstanding HMBS now stands at just over $54 billion. For now, supply is in equilibrium, with new issuance and interest roll-up roughly equal to payoffs.

The direction of total HMBS float is now hard to predict given further trends. HMBS issuance in the first half of 2019 was the lowest six months of issuance in five years. In 2019, HMBS also posted the lowest annual total in five years. However, low interest rates and now a higher lending limit have boosted production significantly, while Mandatory Buyouts continue to fall. How long can this equilibrium last?

We predicted continuing declines in Mandatory Buyouts and December was a case in point, with buyout dollar volume at its lowest level in nearly 4 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 the issuers or repaid by borrowers. From now on, billion-dollar-plus payoff months will be the exception rather than the rule. 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 $476 million, or 51% of the total, the lowest percentage in almost 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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