HMBS March 2021 Part II: The Big Payoff

Outstanding HMBS fell by about $110 million in March 2021, as payoffs spiked and issuance eased somewhat. Payoffs rose to nearly $1.1 billion, the 7th highest monthly total ever. Total outstanding HMBS is now nearly $56.3 billion. The big payoff reflects continued high levels of refinancing.

February was the last month in which GNMA allowed issuance of HMBS pools backed by first participations of LIBOR-indexed loans. For the time being, the Treasury CMT index replaces LIBOR as the base index for newly originated adjustable-rate HECM loans.

In 2019, HMBS posted its lowest annual issuance total in five years. But in 2020 low interest rates and a higher lending limit boosted production significantly to a near-record $10.6 billion. In 2021, the industry may struggle to reach the same levels of production, challenged by higher interest rates. However, new issuance in the first quarter was fairly strong at nearly $2.7 billion.

“Peak Buyout” was an echo of the peak issuance from 2009 through the first half of 2013. Most of this production has already been repurchased by the issuers or repaid by borrowers. Each month fewer and fewer of these peak issuance loans remain, and with lower interest rates loans take longer to roll up to their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion broke down the prepayment numbers further: last month’s 98% MCA mandatory purchases totaled $207 million, the lowest total in nearly seven years. 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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