HMBS February 2021 Part II: Farewell to LIBOR ARMs

Outstanding HMBS rose by $159 million in February 2021, as issuers rushed to issue new LIBOR pools. February was the last month in which GNMA allowed issuance of HMBS pools backed by first participations of LIBOR-indexed loans. For the time being, the Treasury CMT index replaces LIBOR as the base index for newly originated adjustable-rate HECM loans. Payoffs rose to about $825 million. Total outstanding HMBS is now $56.4 billion, nearly an all-time high and the highest total in two and a half years.

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

“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 the issuers or repaid by borrowers. Each month fewer and fewer of these peak issuance loans remain, and so fewer HECM loans reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion broke down the prepayment numbers further: last month’s 98% MCA mandatory purchases totaled $225 million, the lowest total in nearly 7 years. 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.

Comments are closed.