HMBS December 2019: Stocking Half Full in 2018? Then Hang Two Stockings This Year

HMBS issuance totaled $908 million in December 2019, as lower rates continued to strengthen new production. 92 pools were issued in December, including about $484 million of new unseasoned HECM first participation pools, maintaining the high monthly total for new production this year. This month’s total was also helped by two large seasoned new issues, including a CMT-indexed pool. For comparison, HMBS issuers sold 95 pools totaling $619 million in December 2018.

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. Yet, with this month’s issuance, the HMBS market totaled about $8.3 billion for calendar year 2019. HMBS issuance totaled $9.6 billion in 2018 and $10.5 billion in 2017. However, securitization of private reverse mortgages was much higher than previous years. As a result, we estimate that the total issuance of reverse mortgage securities backed by new collateral was about the same as 2018.

Some other trends to watch in 2020:

What happens to LIBOR?
The industry relies heavily on the 12-month LIBOR index for its adjustable rate HECMs. LIBOR is scheduled to go away in 2021, and the plan to replace this index is not clear.

What happens to HECM?
HUD has already hinted at further change. Despite significant improvements in HECM performance over the last several years, restrictions on HECM to HECM refinancing and county level MCA limits are on the table. Are lower Principal Limit Factors also looming?

Will private reverse mortgage production surpass HECMs?
Private reverse mortgages, most of them jumbo-sized, now make up more than 25% of new origination by dollar volume. As HECM is cut back and new private products are introduced, can private RMs surpass HECM as the industry’s main product?

December’s production of original new loan pools was about $484 million, compared to $506 million in November, $426 million in October, $393 million in September, $390 million in August, and $321 million in July. Last month’s tail pool issuances totaled $220 million, within the range of recent tail issuance.
December 2019 issuance divided into 33 First-Participation or Original pools and 59 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 can generate profits for years, helping HMBS issuers during challenging times.

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

Comments are closed.