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

Outstanding HMBS fell by $61 million in March, as payoffs rose and issuance fell. Payoffs totaled approximately $860 million, up $45 million from last month. Total outstanding HMBS has stayed at about $54 billion the last several months, 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. Until last month, low interest rates and a higher lending limit boosted production significantly, while Mandatory Buyouts continue to fall. With the current Coronavirus pandemic, financial markets are dislocated. Will the crisis be the nudge that upsets this equilibrium?

We predicted continuing declines in Mandatory Buyouts, and March was a case in point, with Buyout dollar volume at its lowest level in nearly five 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 $402 million, a low also last seen five years ago. 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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