HMBS February 2020: Low Interest Rates Send Valentine to HMBS Issuers

HMBS issuance totaled $707 million in February 2020, as lower rates continued to strengthen new production. 81 pools were issued in February, including about $501 million of new unseasoned HECM first participation pools, continuing a strong upward trend in production. There were no highly seasoned new issues. What a difference a year makes: February 2019 marked a five-year low when HMBS issuers sold 82 pools totaling $491 million.

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. However, over the last year new production of HECMs and HMBS has slowly climbed back to its long-term average range of $500 – $600 million.

The HMBS market totaled about $8.3 billion for calendar year 2019, down from $9.6 billion in 2018 and $10.5 billion in 2017. However, securitization of private reverse mortgages is a much bigger factor now. As a result, we estimate that the total issuance of reverse mortgage securities backed by new collateral in 2019 was about the same as 2018.

February’s production of original new loan pools was about $501 million, compared to $550 million in January, $484 million in December, $506 million in November, $426 million in October, $393 million in September, $390 million in August, $321 million in July, and barely $274 million in February 2019. Adjusted for day count, February 2020 continues the strong issuance pace of January 2020.
Last month’s tail pool issuances totaled $206 million, within the range of recent tail issuance.

January issuance divided into 33 First-Participation or Original pools and 48 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.

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