May 2018 HMBS: April Showers Bring … Not Many May Flowers

After a robust month in April, HMBS issuance retreated to its new normal in May. Without the help of any highly seasoned pools, HMBS fell to $579 million, the lowest monthly level since September 2014.

As we noted in previous blogs, reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Mortgages (“HECMs”) effective this fiscal year. Rising interest rates will not help either, as they generally require lower PLFs, although so far many HECM lenders have reduced interest rates and margins to maintain PLFs.

Production of original new loan pools was just under $367 million, down even from April and March’s $401 and $419 million, and down sharply from $604 million in February, $657 million in January, and $747 in December 2017. By comparison, HMBS issuance topped $768 million in May 2017. For the foreseeable future, this low level of production looks like the new normal. Last month’s tail pool issuance also retreated to just under $213 million, though this is well within the range of recent tail issuance.

May issuance divided evenly into 57 original pools and 57 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. As we noted last month, tail HMBS issuance can generate profits for years, helping HMBS issuers offset challenging periods such as this.

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

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