HMBS July 2020: Fireworks Go Boom

HMBS issuance totaled $1.42 billion in July 2020, nearly a record month and the highest since February 2018. Strong new production and a large seasoned pool led the way. Helped by a continuing recovery in the capital markets and low interest rates, HMBS issuers easily surpassed June’s totals. 77 pools were issued in July.

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. But HECM production steadily recovered, and now new production of HMBS exceeds its long-term average range of $500 – $600 million. Combined with the dramatic fall in default rates and the reemergence of proprietary loans, the reverse mortgage market is stronger than ever. However, this strength may still be challenged by changes in future economic conditions and the transition out of LIBOR.

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. All private reverse mortgage lenders who had suspended their program have resumed lending.

July production of original new loan pools was about $691 million, compared to $593 million in June, $586 million in May, $470 million in April, $455 million in March, $501 million in February, $550 million in January, and a mere $321 million in July 2019.

Last month’s tail pool issuances totaled $175 million, below the typical $200-$250 million range.

July issuance divided into 37 first-participation or original pools and 40 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 is essential for HMBS issuers to finance their monthly advances, such as borrower draws, FHA mortgage insurance premiums, etc.

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

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