HMBS March 2021; HECM MMI Fund: As Predicted

HMBS issuance remained fairly strong at $858 million in March 2021, the first month of the post-LIBOR era. February 2021 was the last month in which Ginnie Mae allowed pooling of new HMBS pools backed by first participations of LIBOR-based HECMs. The Constant Maturity Treasury “CMT” index is now the only index for new adjustable rate HECM loans and will remain so until a transition to another index, likely the Secured Overnight Financing Rate, or “SOFR.” 91 pools were issued in March, including 35 first-participation CMT pools. Before January 2021 no new first-participation CMT pools had been issued in many years.

Earlier this week, the HECM industry received good news that FHA’s MMI Fund now shows a surplus of 2.39% for the HECM portion of the Fund. This report comes only four months after FHA claimed the HECM program was a drag on its mortgage insurance program and was being “subsidized” by their forward mortgage program. New View Advisors was skeptical of this pessimistic view and made our case December 7, 2020: We predicted FHA would soon show a significant HECM surplus, and that has already come to pass. FHA should now be under less pressure to take measures to reduce HECM risk, program changes that could have taken the form of higher Mortgage Insurance Premiums (MIP) or lower lending limits.

A record $10.6 billion in HMBS was issued in 2020, easily beating 2019’s total of $8.3 billion and 2018’s $9.6 billion. HMBS issuance in the first quarter of 2021 totaled about $2.7 billion, but issuers may find it difficult to maintain this pace in the face of rising interest rates.

March production of original new loan pools was $671 million, compared to February’s $693 million, January’s $552 million, December’s record $878 million, and November’s $765 million. Approximately $455 million in original new loan pools were issued in March 2020.

March issuance divided into 43 first-participation or original pools, and 48 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. Last month’s tail pool issuances totaled $187 million, below the typical $200-$250 million range.

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

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