HMBS Issuance Strong in April 2015 But Challenges Loom

HMBS issuers created $798 million in new HMBS pools during April 2015, the largest HMBS issuance since December 2013, up from $660 million in March, and substantially higher than April 2014’s paltry $396 million. 113 pools were issued, consisting of 63 original issuances and 50 tail pools. Thus far in 2015, HMBS issuance is averaging just over $700 million per month, well above 2014’s $550 million monthly average.

However, new regulations may prevent HMBS issuers from maintaining this healthy clip. FHA’s Financial Assessment requirements for newly originated HECM loans will certainly reduce loan volume for the foreseeable future. Given the lag between loan origination and securitization, it will take a few months before we know the full impact.

Total outstanding HMBS is $50.9 billion, up from $50.7 billion at the end of March. We estimate that this increase is composed of $159 million in negative amortization, plus the $798 million in new issuance, minus about $650 million in payoffs. If monthly issuance falls back below $500 million, total HMBS outstanding could shrink for the first time.

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 $155 million, about 19% of April’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.

(Note: The following was published by New View Advisors, which compiles rankings from publicly available Ginnie Mae data.)