HMBS May 2023 Part II: More of the Same

HMBS payoffs rose in May, as Mandatory Purchases continued to rise, and natural payoffs rose to more than 9% per annum. May payoffs totaled about $970 million. Outstanding HMBS fell slightly to $59.4 billion due to the weak issuance and uptick in payoffs.

As mentioned in past blogs, Ginnie Mae took over RMF’s HMBS portfolio in December. Ginnie Mae’s recent data release shows “Ginnie Mae – Reverse Mortgage Funding 42” as the issuer of record for 4,046 former RMF pools. About $200 million of Issuer 42’s portfolio paid off in May. “Issuer 42” HMBS accounts for just under $20 billion, or about 33% of all outstanding HMBS.

Issuer 42 is not issuing any tail pools. After nearly four months, we estimate Issuer 42 has an approximate $600 million uncertificated position, that is, the excess of their portfolio’s HECM asset balance over the balance of their HMBS liability. So far Ginnie Mae’s position is like Fannie Mae’s HECM portfolio, a big melting iceberg which has dwindled from $75 billion to less than $5 billion today, more than a decade after Fannie bought her last HECM.

The lending limit/MCA was raised to $1,089,300 in 2023; so far this has not prevented a significant decline in industry volume. Higher interest rates and slowing home price appreciation will challenge the HMBS market for the foreseeable future.

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, 53% of HMBS payoffs last month were due to Mandatory Purchase. Last month’s 98% MCA Mandatory Purchases totaled about $515 million, continuing a trend of rising HMS buyouts and HECM assignments to HUD.

Including the Mandatory Purchases, HMBS paid off at an 18% annual rate in May, slightly higher than April. 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 9%, consistent with its long-term average.

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

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