HMBS: In the Month of May, “Gotta Find Me a Future, Move Out of My Way”

The future of reverse mortgage capital markets provided the theme of last month’s NRMLA Investors Conference in New York. In the month of May, HMBS issuers provided a glimpse of the future, with the first HMBS platinum pools, continued stagnation in the original pool market, and more highly seasoned issuance from the melting iceberg of (very) old whole loans.

HMBS issuance rose in May 2019 to just over $855 million. If not for three highly seasoned pools that bumped up issuance volume by over $282 million, May issuance would have been consistent with the low issuance of recent months. 94 pools were issued in May, including about $325 million of new unseasoned HECM first participation pools. HMBS float shrinkage will probably hold steady at about $54.5 billion if May’s payoffs are in line with recent months.

Ginnie Mae launched its HMBS Platinum Program on April 10th. Market participants can now aggregate Ginnie Mae II HMBS pools into Platinum pools. Like the underlying HMBS, these new pools will be segregated based on collateral type. As of today, no HMBS Platinum pool has been issued.

Live Well Financial issued 6 HMBS pools in May totaling about $23 million. Live Well recently ceased originating new loans.

Reverse mortgage lenders face a new era of reduced volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of Fiscal Year 2018. For the calendar year of 2018, HMBS issuance totaled about $9.6 billion, compared to $10.5 billion in 2017. The HMBS market will be hard pressed to equal last year’s totals, which included some HMBS issuance backed by new HECM loans originated at higher PLFs. For comparison, HMBS issuers sold 113 pools totaling $579 million in May 2018.

Production of original new loan pools was about $325 million in May, compared to $300 million in April, $277 million in March, $274 in February, and $304 million in January. Last month’s tail pool issuances totaled $247 million, within the range of recent tail issuance. For the past few months, the new issuance market has settled into Groundhog Day mode, with very similar volume statistics other than the occasional seasoned first participation issue.

May 2019 issuance divided into 36 First-Participation or Original pools, and 58 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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