HMBS June 2020: No June Swoon, Too Soon to Call It a Boom? High Noon with LIBOR Looms.

HMBS issuance totaled $766 million in June 2020, with strong new production again leading the way. Helped by a recovery in the capital markets, HMBS issuers essentially equaled May’s strong total and surpassed May in new production issuance. 82 pools were issued in June. There were no highly seasoned pools issued.

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. Over the last year or so, new production of HECMs and HMBS grew back to 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 be challenged by 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. As further evidence of the recovery, a major private reverse mortgage lender who had suspended their program has resumed lending.

June production of original new loan pools was about $593 million, compared to $586 million in May, $470 million in April, $455 million in March, $501 million in February, $550 million in January, $484 million in December 2019, and a mere $331 million in June 2019.

Last month’s tail pool issuances totaled $172 million, below the typical $200-$250 million range.

June issuance divided into 36 First-Participation or Original pools and 46 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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