January 2019 Part II: HMBS Can’t Drive … 55 Billion

HMBS float fell again in January as big payoffs continued to outweigh falling issuance. With just over $900 million in payoffs, total outstanding HMBS ended the month at $55.031 billion, down about $100 million from December. While HMBS float has been range-bound between $55 billion and $57 billion for over two years, it will likely fall below $55 billion by the end of February.

As noted last week, HMBS issuance was only about $614 million in January, including one highly seasoned new issue.

We predict continuing declines in Mandatory Buyouts in the foreseeable future. “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 or repaid by borrowers. From now on, billion-dollar-plus payoff months will be the exception rather than the rule. Although many loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), Peak Buyout appears to have ended.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases accounted for $637 million, or about 69%, of the payoffs last month. This continues a generally downward trend from the buyout peak in last year’s third quarter, which averaged over $750 million in Mandatory Purchases per month.

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

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