HMBS February 2017: After January Delirium, February Equilibrium

The HMBS market returned to equilibrium in February, with both new issuance and outstanding float matching previous levels. Issuers created 97 pools in February totaling nearly $713 million. HMBS production was very similar to November and December 2016, but down significantly from January’s $868 million, which included large seasoned pools. The February pools divided into 48 original pools and a record 49 tail pools. No seasoned pools were issued. Production of original new loan pools was $513 million, down from January’s $525 million.

Original pools are those HMBS pools backed by the first participation in a previously uncertificated HECM loan. Tail HMBS issuances are HMBS pools consisting of subsequent participations. In other words, tail pools are created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance. February’s tail issuance was about $200 million, in line with normal tail production in the past 12 months.

In December 2016, the HMBS market shrank for first time as record prepayments drove total outstanding HMBS to just under $55 billion. Last month however, total outstanding HMBS rose by about $45 million from January, driven by steady issuance, and a drop off from the record payoffs of December 2016. We estimate that last month’s change in HMBS balance was composed of approximately $176 million in negative amortization (a record), plus the $713 million in new issuance, minus $843 million in payoffs. Payoffs have exceeded new issuance for six months in a row.

Payoffs figure continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion Co once again crunched the numbers: the 98% MCA assignments accounted for a record 65% of the dollar amount of payoffs last month. This percentage has been rising steadily. According to Recursion, the 98% MCA puts were only 29.8% of payoffs in September 2013. This could mean further shrinkage in HMBS float throughout 2017.

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

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