HMBS December 2021 Part II: Refinancing Is the Holiday Guest That Won’t Leave

Outstanding HMBS rose to an all-time high of $57.1 billion in December 2021 as record issuance outweighed another big, refinance-driven month of payoffs.

Meanwhile, extraordinary levels of both issuance and HECM loan payoffs continued. Fueled by refinancing, HMBS payoffs exceeded $1 billion for the tenth month in a row. Outstanding HMBS rose $310 million despite these near-record payoffs. As we predicted, December’s data is a disappointment for HMBS investors hoping for a prepayment slowdown. While falling short of November’s record payoffs, December came close in both dollar amount and speed: $1.28 billion, representing a 24% annual payoff rate. Our friends at Recursion broke down the prepayment numbers further: last month’s 98% MCA mandatory purchases were just $218 million, less than 18% of the total for the first time ever. Will rising interest rates finally allow investors to show their unwanted guest the door? For now, refis seem determined to stay through the New Year’s Eve party.

As we noted last week, American Advisors Group sold most of its HMBS issuance portfolio to Reverse Mortgage Funding, and Mr. Cooper Group sold its HMBS portfolio to Mortgage Assets Management, LLC (MAM). The resulting consolidation leaves the top five issuers accounting for more than 93% of all outstanding HMBS.

According to Ginnie Mae data, AAG was listed in October as the issuer of record for 1,529 HMBS pools totaling $13.1 billion. At yearend, AAG is listed for just 55 pools totaling $1.6 billion. Reverse Mortgage Funding is now the issuer of record for over 3,800 pools totaling $23.5 billion, more than 41% of all outstanding HMBS. The December month end Ginnie Mae data release reflects the Mr. Cooper/MAM sale, removing Mr. Cooper from the HMBS issuance ranks.

In these strategic transactions, the purchasing issuer pays the selling issuer the present value of the issuer’s uncertificated position, which is the difference between future HECM cash flow and future HMBS cash flow. The buyer becomes the issuer for the purchased HMBS pools, benefiting from the excess spread between the HECM interest rate and the HMBS pass-through rate, and any premiums from future tail issuance. Of course, the buyer also assumes the liabilities of an HMBS issuer: advancing Mortgage Insurance Premium (MIP), borrower draws, realized losses from claims, and many others.

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

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