HMBS November 2021 Part II: Santa Comes Early With Sack Full of Deals … and Refi Naughty List

Outstanding HMBS remained near its all-time high of $56.8 billion in November 2021 as a slew of big issuer transactions shuffled the deck, with AAG selling nearly all its HMBS issuer portfolio to Reverse Mortgage Funding and Mr. Cooper Group selling its HMBS portfolio, along with its reverse mortgage assets, to Mortgage Assets Management, LLC (“MAM”).

Meanwhile, very high levels of both issuance and HECM loan payoffs continued. Driven by extraordinary levels of refinancing, HMBS payoffs exceeded $1 billion for the ninth month in a row. Outstanding HMBS fell by $30 million, despite record new issuance. Any HMBS investor hoping for a cooling off of prepayments will be disappointed by November’s data. After receiving a bag of rocks for Halloween in October, and the turkey that was November, expect a stocking full of coal in December. October’s payoffs totaled $1.2 billion for a 23% CPR (Conditional Prepayment Rate, or annual rate of payoffs), but November’s payoffs set a new record for both amount and speed: over $1.3 billion, for a blistering 25% CPR.

According to Ginnie Mae data, AAG was listed as the issuer of record for 1,529 HMBS pools totaling $13.1 billion as of October month-end. As of November month-end, AAG is listed as the issuer of record for 46 pools totaling $1.4 billion. Reverse Mortgage Funding is now the issuer of record for nearly 3,800 pools totaling over $23.6 billion, almost 42% of all outstanding HMBS. The November month-end Ginnie Mae data release does not yet reflect the MAM/Mr. Cooper transaction. Mr. Cooper is still shown as issuer of record for over 2,000 HMBS pools totaling more than $4.3 billion.

In these strategic transactions, the purchasing issuer pays the selling issuer the present value of the issuer’s uncertificated position, which is the difference between future HECM cash flow and future HMBS cash flow. The buyer becomes the issuer for the purchased HMBS pools, therefore benefits from the excess spread of the HECM interest rate over the HMBS pass-through rate, and also receives premiums from future tail issuance. Of course, the buyer also assumes the many liabilities of an HMBS issuer: advancing Mortgage Insurance Premium (“MIP”), borrower draws, realized losses from claims, and many others.

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 the first eleven months of 2021, HMBS new issuance already exceeds $11.7 billion, a new record.

Our friends at Recursion broke down the prepayment numbers further: last month’s 98% MCA mandatory purchases totaled $255 million, less than 19% of the total for the first time ever.

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

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