New Tails and Old Loans Help HMBS Bounce off the Bottom

HMBS issuers created $582 million in new HMBS pools during May 2014, the sixth smallest monthly HMBS issuance since May 2009, but up from last month’s paltry $396 million. 91 pools were issued, consisting of 49 original issuances and 42 tail pools. By comparison, HMBS issuance totaled $845 million in May 2013, and averaged nearly $800 million per month during 2013. Thus far in 2014, HMBS issuance is averaging only $539 million per month.

Original HMBS pools are created when a pool of FHA-insured Home Equity Conversion Mortgages (“HECMs”) is securitized for the first time. About $60 million of seasoned HECM loans were securitized for the first time in May, including a pool of 7 year-old CMT loans. Tail HMBS issuances are HMBS pools created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance. Tail Issuances helped, accounting for about $140 million, up $19 million from April.

Newly originated loans comprise a large majority of HMBS issuance in any given month. As a result, HMBS issuance is a pretty good barometer of recent HECM production. Beginning with FY 2014, HECM principal limits were cut once again, and FHA imposed new restrictions on the initial draw allowed for certain borrowers. The resulting lower HECM production inevitably reduces HMBS production.

Overall Ginnie Mae issuance is down significantly, with only $23.3 billion issued in April 2014, compared to an average of $38 billion per month in FY 2013. However, that was also a rebound from $17.8 billion in March. (These figures include both forward and reverse, Ginnie Mae I and Ginnie Mae II securities.) This reflects the decline in mortgage originations generally, especially refinancing.

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

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