October 2022: Halloween Scare – HMBS Issuance a Ghost of its Former Self

HECM Mortgage-Backed Securities (“HMBS”) issuance fell in October to $824 million, falling for the sixth straight month as higher interest rates continued to take their toll. HMBS issuance remained below $1 billion for only the third time in 19 months.

With ten months in the books and nearly $12.5 billion issued, HMBS is on pace to set another new volume record in 2022. However, for the foreseeable future higher interest rates will challenge the reverse mortgage market, driving down home values and the Principal Limit Factors (“PLFs”) that determine how much HECM lenders can lend against those home values.

October’s original (first participation) production fell to $607 million, down from $744 million in September, $749 million in August, and significantly below July’s $975 million, June’s $1.1 billion, and May’s $1.2 billion, and less than half April’s record $1.4 billion in new issuance. October’s original new loan pool production was also much less than October 2021, when approximately $1.07 billion in original new HMBS pools were issued.

84 pools were issued in October: 37 first-participation or original pools, and 47 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 and FHA mortgage insurance premiums. Last month’s tail pool issuances totaled $216 million, within the typical range.

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

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