HMBS September 2020: Sorrow for the Lost LIBOR; Quoth Ginnie Mae: “Nevermore”

HMBS issuance totaled $883 million in September 2020, marking another banner month, but overshadowed by Ginnie Mae’s announcement ending LIBOR as an index for new HMBS pools backed by first participations of HECM loans. Helped by a recovered capital market and low interest rates, HMBS issuers continued a streak of robust production. 79 pools were issued in September.

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.

So far, $7.6 billion in HMBS has been issued in 2020, on track to beat not only last year’s total of $8.3 billion for calendar year 2019, but possibly 2018’s $9.6 billion total, as a mad rush ensues to issue LIBOR HMBS before the clock runs out. Even 2017’s record total issuance of $10.5 billion is in reach with a few more months of strong production. Also, securitization of private reverse mortgages is a much bigger factor now. We estimate that the total issuance of reverse mortgage securities backed by new collateral in 2019 was about the same as 2018. Private reverse mortgage lenders who had suspended their program have resumed lending, and private label securitizations are being issued by multiple issuers.

September production of original new loan pools was about $693 million, compared to 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 $393 million in September 2019.

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

September issuance divided into 35 first-participation or original pools and 44 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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