Strong HMBS Issuance Continues in June

HMBS issuers created $845 million in new HMBS pools during June 2015, the second largest HMBS issuance since November 2013, down $29 million from May but substantially higher than June 2014’s $439 million. Some 107 pools were issued, consisting of 59 original issuances and 48 tail pools. Thus far in 2015, HMBS issuance is averaging just over $753 million per month, well above 2014’s $550 million monthly average.

Original (that is, non-tail) pools totaled approximately $667 million in June. Unlike last month, no seasoned original (that is, non-tail) pools were issued. Every one of the original HECM pools issued in June was backed by new HECM loans averaging 2 or 3 months seasoning. As we noted last month, FHA’s Financial Assessment requirements for new HECM loans will certainly reduce new loan origination, at least in the short run. We will soon see the impact of Financial Assessment on HMBS supply.

Total outstanding HMBS is about $51.7 billion, up from $51.4 billion at the end of April. We estimate that this increase is composed of approximately $160 million in negative amortization, plus the $845 million in new issuance, minus about $654 million in payoffs. If monthly issuance falls back below $400 million, total HMBS outstanding could shrink for the first time. Payoffs are rising steadily, as many of the loan balances in 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. Newly originated loans comprise a large majority of HMBS issuance in any given month. As a result, HMBS issuance is a fairly good barometer of recent HECM production.

Note: The following was published by New View Advisors, which compiles data from publicly available Ginnie Mae data as well as private sources.