Tail of Two Securities: HMBS Issuance Trends Diverge

HMBS issuance was strong overall in July 2015, with record “Tail” issuance partially compensating for a decline in origination and securitization of HMBS backed by new HECM loans. HMBS issuers created $809 million in new HMBS pools last month, down $35 million from June but substantially higher than July 2014’s $507 million. Thus far in 2015, HMBS issuance is averaging just over $762 million per month, well above 2014’s $550 million monthly average. 115 pools were issued, consisting of 61 original issuances and 54 tail pools. July’s tail pools totaled $182.5 million, breaking the $181.7 million record set in September 2011.

Original (that is, non-tail) pools totaled approximately $627 million in July, down 6% from June. We predicted FHA’s new Financial Assessment requirements for new HECM loans would reduce new loan origination, at least in the short run. With the decline in original pool issuance, we are seeing the impact of Financial Assessment on HMBS supply.

Total outstanding HMBS is just under $52 billion, up from $51.7 billion at the end of June. We estimate that this increase is composed of approximately $160 million in negative amortization, plus the $809 million in new issuance, minus about $685 million in payoffs. Payoffs continue to rise steadily, as many of the loan balances in the older pools are reaching 98% of their Maximum Claim Amount, at which point they are purchased out of the HMBS pool and assigned to HUD.

Original HMBS pools are created when a pool of FHA-insured Home Equity Conversion Mortgages (“HECMs”) is securitized for the first time. Tail HMBS issuances are HMBS pools created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance. Tail Issuances accounted for about 23% of July’s total. Newly originated loans comprise a large majority of HMBS issuance in any given month. As a result, HMBS issuance is a good barometer of recent HECM production.

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

Comments are closed.