HMBS payoffs fell in July, as Mandatory Purchases continued to rise and natural payoffs fell to approximately 8% per annum. July payoffs totaled about $950 million. Outstanding HMBS fell for the sixth month in a row to just over $59.1 billion due to weak issuance.
As is widely known, Ginnie Mae took over RMF’s HMBS portfolio in December. In Ginnie Mae’s recent data release, “Ginnie Mae – Reverse Mortgage Funding 42” is now shown as the issuer of record for 4,044 former RMF pools. About $340 million of Issuer 42’s portfolio paid off in July. “Issuer 42” HMBS accounts for just under $19.3 billion, or about 33% of all outstanding HMBS.
Issuer 42 is not issuing any tail pools. We estimate Issuer 42 has an approximate $800 million uncertificated position, that is, the excess of their portfolio’s HECM asset balance over the balance of their HMBS liability. So far Ginnie Mae’s position is like Fannie Mae’s HECM portfolio, a big melting iceberg which has dwindled from $75 billion to less than $5 billion today, more than a decade after Fannie bought her last HECM.
The lending limit/MCA was raised to $1,089,300 in 2023; so far this has not prevented a significant decline in industry volume. Higher interest rates and slowing home price appreciation will challenge the HMBS market for the foreseeable future.
When a HECM loan balance reaches 98% of its MCA, the HMBS issuer is required to buy the loans out of the HMBS pool, and then may assign the loan to HUD if the loan is not in default. This is effectively a prepayment event for the HMBS investor, even though the underlying HECM loan remains outstanding. According to our friends at Recursion, 58% of HMBS payoffs last month were due to Mandatory Purchase, totaling about $541 million, continuing a trend of rising HMS buyouts and HECM assignments to HUD.
Including the Mandatory Purchases, HMBS paid off at an 17.8% annual rate in July, and 17.0% over the last 12 months, the lowest annual rate in more than six years. Exclusive of Mandatory Purchases, the rate of HMBS payoffs has fallen significantly over the past twelve months. HMBS payoffs resulting from underlying HECM loan payoffs, including payoffs due to mortality and refinancing, is about 8%, under its long-term average.
New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.