HMBS July 2022 Part II: Refi Retreat Continues

HMBS payoffs fell again in July, as the refinancing wave continued its retreat. July payoffs totaled about $1 billion, the lowest amount in 17 months. Outstanding HMBS rose to a record $59 billion due to a combination of fairly strong new issuance, a faster roll-up from rising interest rates and the drop in payoffs.

The HECM refinance wave was assisted by a higher HECM lending limit (now $970,800) and surging home prices. Higher interest rates have finally caught up with the HMBS market, driving down principal limit factors (initial loan-to-value ratios) sharply.

In July HMBS paid off at an 18% annual rate, the first 1-month payoff rate below 20% in over a year, but still above historical averages. HMBS prepayment rates are bound to fall further in the third quarter.

2021 broke all previous records with a $13.2 billion HMBS issuance total. 2021’s record may still fall: over $9.7 billion was issued in the first seven months of 2022.

Our friends at Recursion broke down the prepayment numbers further: last month’s 98% MCA mandatory purchases totaled $303 million, 31% of the total, the highest percentage in a year and a half.

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

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