HMBS May 2020: May Production Blossoms

HMBS issuance totaled $767 million in May 2020, with strong new production leading the way. Beginning in March, the Coronavirus pandemic took its toll on the capital markets, reducing liquidity as lenders and investors pulled back. However, 91 pools were issued in May, a sharp contrast to the six year low of 77 pools in March, followed by 86 pools in April. There were no highly seasoned new issues.

Reverse mortgage lenders weathered a long period of reduced new origination volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of FY2018. However, over the last year new production of HECMs and HMBS has slowly climbed back to its long-term average range of $500 – $600 million. While March and April fell below that range, the May numbers did not.

The HMBS market totaled about $8.3 billion for calendar year 2019, down from $9.6 billion in 2018 and $10.5 billion in 2017. But, securitization of private reverse mortgages is a much bigger factor now. As a result, we estimate the total issuance of reverse mortgage securities backed by new collateral in 2019 was about the same as 2018. As further evidence of the recovery, a major private reverse mortgage lender that had suspended their program has resumed lending.

May production of original new loan pools was about $586 million, compared to $470 million in April, $455 million in March, $501 million in February, $550 million in January, $484 million in December 2019, and a mere $325 million in May 2019.

Last month’s tail pool issuances totaled $181 million, below the typical $200-$250 million range.

May 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.

On a side note, this is our 200th blog post, dating back to June 2009.  A modest milestone, but a milestone nonetheless.

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

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