HMBS June 2024 Part II: Summer Doldrums

Total HMBS payoffs in June decreased from May; overall prepayment speeds decreased to 16.7% per annum from May’s 18.1% per annum. Outstanding HMBS decreased to $58.25 billion – the seventh consecutive decrease and the 15th of the last 17 months.

Finance of America is the issuer of record of $17.3 billion or about 29.7% of all outstanding HMBS, having edged out Ginnie Mae last month. Along with Ginnie Mae at 29%, Longbridge at 15%, and PHH at 13%, these four Issuers account for 86% of all outstanding HMBS.

As previously mentioned, Ginnie Mae took over RMF’s HMBS portfolio in December 2022. “Ginnie Mae – Reverse Mortgage Funding 42” remains as issuer of record for 3,990 former RMF pools. About $306 million of Issuer 42’s portfolio paid off in June, but Issuer 42 still accounts for $16.7 billion of all outstanding HMBS. Issuer 42 has not issued any tail pools; we estimate Issuer 42 now has an approximate $1.1 billion uncertificated position, that is, the excess of their portfolio’s HECM asset balance over the balance of their HMBS liability.

When a HECM loan balance reaches 98% of its MCA, the HMBS issuer is required to buy it out of the HMBS pool, and then 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, payoffs last month due to Mandatory Purchases occurred at a rate of 9.7% per annum – the same as May.

Including the Mandatory Purchases, HMBS paid off at a 16.7% annual rate in June, and 17.1% over the last 12 months. Exclusive of Mandatory Purchases, the rate of HMBS payoffs over the past 12 months is well below the prior 12 months. Natural payoffs (those other than Mandatory Purchases) for the 12 month period ending June 30th were 7.2% per annum, compared to 8.7% for the prior 12 month period.

Ginnie Mae published its “HMBS 2.0” Term Sheet for comment last month. The new HMBS program will allow securitization of HECM loans that have UPBs in excess of 98% of the Maximum Claim Amount. Once implemented, HMBS 2.0 should increase HMBS issuance materially by financing most mandatory buyouts, which exceeded $500 million last month according to Recursion.

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

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