HMBS October 2020: HMBS Issuers Haunted by Ghost of LIBOR

HMBS issuance totaled $879 million in October, marking another banner month overshadowed by the pending demise of LIBOR as an HMBS 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. 86 pools were issued in October.

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. But HECM production steadily recovered, and now new production of HMBS exceeds its long-term average range of $500 – $600 million. Helped not only by historically low interest rates, but also 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.

$8.5 billion in HMBS has been issued in 2020 through October, already beating last year’s total of $8.3 billion. HMBS Issuers are on track to exceed 2018’s $9.6 billion total, as a mad rush ensues to issue LIBOR HMBS before the clock runs out. 2017’s total issuance of $10.5 billion may be out of reach, but not by much.

October production of original new loan pools was about $674 million, compared to 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, $501 million in February, and a mere $426 million in October 2019.

Last month’s tail pool issuances totaled $205 million, at the low end of the typical $200-$250 million range.

October issuance divided into 37 first-participation or original pools and 49 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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