HMBS December 2020 Part II: Mad Dash to the LIBOR Exit

Outstanding HMBS rose by $412 million in December 2020, as issuers rushed to issue new LIBOR pools. After February 2021, GNMA will no longer allow issuance of HMBS pools backed by first participations of LIBOR-indexed loans. Payoffs fell slightly to approximately $900 million. Total outstanding HMBS rose again, to just under $56 billion, the highest total in over two years.

In 2019, HMBS posted its lowest annual issuance total in five years. But 2020’s low interest rates and higher lending limit boosted production to a near-record $10.6 billion. The industry may struggle in 2021 to reach similar levels of production.

“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 issuers or repaid by borrowers. Each month fewer and fewer of these peak issuance loans remain, so fewer HECM loans reach their 98% Maximum Claim Amount (“MCA”) buyout threshold. Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $230 million, a 6-year low. 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. With buyouts at less than one-third their peak level, Peak Buyout is long gone.

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

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