HMBS September 2020 Part II: HMBS Supply Rises, For Now

Outstanding HMBS increased by $141 million in September, as payoffs rose and new issuance remained strong. Payoffs were just under $880 million, despite the continued fall of mandatory buyouts. Total outstanding HMBS rose to over $55.3 billion, the highest total in 23 months. Two months ago we asked: is this is the end of the HMBS range-bound equilibrium of the last year and a half, in which HMBS issuance and interest roll-up roughly equaled payoffs? For the time being, yes it is. For the past two months, HBMS issuance and payoffs have been roughly equal, so supply has increased approximately by the amount of interest roll-up.

In 2019, HMBS posted the lowest annual total in five years. But 2020 is shaping up differently. In recent months, low interest rates and a higher lending limit boosted production significantly, while mandatory buyouts continue to fall. This trend will likely continue for the rest of 2020 as HMBS issuers rush to beat the year-end LIBOR deadline, after which no new first-participation LIBOR pools may be issued. Beginning in 2021, the industry may struggle to reach the same levels of production.

“Peak Buyout” was an echo of the peak issuance from 2009 through the first half of 2013. Much of this production has already been repurchased by the issuers or repaid by borrowers. Each month fewer and fewer of these peak issuance loans remain, and so fewer HECM loans reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $253 million, yet another 5-year low. This continues the downward trend from the buyout peak in the third quarter of 2018, which averaged over $750 million in Mandatory Purchases per month. With buyouts at one-third their peak level, Peak Buyout is long gone.

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

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