HMBS November 2020: Issuers Carve Up Big LIBOR Turkey but Few Leftovers Remain

HMBS issuance totaled $956 million in November 2020, as issuers continued their mad rush to originate and securitize LIBOR-indexed HECM loans before the demise of that index. December 2020 will be the last month in which Ginnie Mae allows pooling of new HMBS pools backed by first participations of LIBOR-based HECMs. 85 pools were issued in November, of which 73 were LIBOR pools.

Helped by historically low interest rates, lower default rates, and the reemergence of proprietary loans, the reverse mortgage market is stronger than ever. However, this strength may soon be challenged by economic conditions and the transition out of LIBOR. The Constant Maturity Treasury “CMT” index will return as the index for adjustable rate HECM loans, at least until the transition to another index, likely the Secured Overnight Financing Rate (“SOFR”) occurs. No new, first-participation CMT pools have been issued for many years, and probably none will reappear until 2021.

$9.4 billion in HMBS has been issued through November 2020, already beating last year’s total of $8.3 billion. HMBS Issuers are on track to easily exceed 2018’s $9.6 billion total. 2017’s total issuance of $10.5 billion may be out of reach, but not by much.

November production of original new loan pools was $765 million, compared to October’s production of $674 million, September’s $693 million, August’s $666 million, July’s $691 million, $593 million in June, $586 million in May, $470 million in April, $455 million in March, and $506 million in November 2019. Last month’s new loan pool issuance exceeded even November 2017’s high watermark of $755 million, when issuers were rushing to close loans prior to the implementation of Mortgagee Letter 2017-12.

Last month’s tail pool issuances totaled $191 million, below the low end of the typical $200-$250 million range.

November issuance divided into 44 first-participation or original pools, and 41 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.

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

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