HMBS June 2020 Part II: HMBS Float Remains in Equilibrium Just Above $54 Billion

Outstanding HMBS fell by $15 million in June, as payoffs rose and issuance remained strong. Payoffs totaled approximately $927 million, consistent with average monthly payoffs over the last year. Total outstanding HMBS remains at $54.4 billion. Over the last year and a half, this HMBS total has been in a state of equilibrium where new issuance and interest roll-up roughly equal payoffs.

In 2019, HMBS posted the lowest annual total in five years. In recent months, low interest rates and a higher lending limit boosted production significantly, while Mandatory Buyouts continue to fall. But how long can this equilibrium last?

We predicted continuing declines in Mandatory Buyouts, and June was a case in point, with Buyout dollar volume still near its lowest level in nearly 5 years. “Peak Buyout” was an echo of the peak issuance from 2009 through the first half of 2013. Much of this production has already been repurchased by the issuers or repaid by borrowers. Many HECM loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), but Peak Buyout is long gone.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled just $342 million, another 5-year low. This continues the downward trend from the buyout peak in the third quarter of 2018, which averaged over $750 million in Mandatory Purchases per month.

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

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