HMBS March 2023 Part II: Waiting For Issuer 43

HMBS payoffs rose in March, as Mandatory Purchases continued to rise and natural payoffs increased to more than 8% per annum. March payoffs totaled $950 million, the highest payoff amount in 7 months. Outstanding HMBS fell slightly to $59.6 billion due to the weak issuance and uptick in payoffs.

Ginnie Mae took over RMF’s HMBS portfolio in December. In Ginnie Mae’s recent data release, “Ginnie Mae – Reverse Mortgage Funding 42” is still shown as the issuer of record for the 4,051 former RMF pools. About $200 million of Issuer 42’s portfolio paid off in February. Issuer 42 HMBS accounts for just over $20 billion, or 34% of all outstanding HMBS.

Issuer 42 is not issuing tail pools. After nearly 4 months, we estimate Issuer 42 has an approximate $400 million uncertificated position, that is, the excess of its portfolio’s HECM asset balance over the balance of its HMBS liability. Is there an “Issuer 43” waiting in the wings to take over this portfolio, or will it be a big melting iceberg like Fannie Mae’s HECM portfolio, which has dwindled from $75 billion to $5 billion today, more than a decade after Fannie bought her last HECM. Only time will tell.

When a HECM loan balance reaches 98% of its MCA, the HMBS issuer is required to buy the loans out of the HMBS pool, and then may 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, 52% of HMBS payoffs last month were due to Mandatory Purchase. Last month’s 98% MCA Mandatory Purchases totaled $482 million, the highest dollar total in over 3 years.

Including the Mandatory Purchases, HMBS paid off at a 17.8% annual rate in March, up from February’s 15.2% pace. Exclusive of Mandatory Purchases, the rate of HMBS payoffs has fallen significantly. HMBS payoffs resulting from underlying HECM loan payoffs, including payoffs due to mortality and refinancing, is about 8%, compared to 22% a year ago.

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

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