November 2018 HMBS: Looking For Mr. Good Nadir

HMBS issuance fell in November 2018 to just over $521 million, the lowest issuance level in over four years. In all, 84 pools were issued in November, the fewest since February 2015. Further shrinkage in HMBS float seems inevitable. Where is the bottom? Last summer a garden of hopeful metaphors bloomed, in which Bouncing Dead Cats Turned the Corner just in time to witness the Nadir of the HECM. But the market has yet to find its new normal.

Reverse mortgage lenders face a new era of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Mortgages (“HECMs”) effective last year. Rising interest rates will not help either, as they generally require lower PLFs.

Production of original new loan pools was just under $298 million, down from October’s $325 million and $360 million in September. Last month’s tail pool issuances totaled $224 million, within the range of recent tail issuance. By comparison, HMBS issuers sold 107 pools totaling $913 million in October 2017.

November 2018 issuance divided into 31 original pools and 53 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 in challenging periods.

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

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