Whale of Tail drives HMBS Issuance in October 2015

HMBS issuers created approximately $789 million in new HMBS pools during October 2015, driven by record tail issuance of $291 million. The tail issuance includes two pools totaling nearly $100 million issued by Wells Fargo, marking their first HMBS issuance since June 2012. Last month’s HMBS issuance total exceeds both September’s $680 million in and October 2014’s $690 million. 112 pools were issued, consisting of 55 original issuances and 57 tail pools. Without the Wells Fargo pools, HMBS issuance would have been a lackluster $689 million, below this year’s running average. Thus far in 2015, HMBS issuance is averaging just over $753 million per month, well above 2014’s $550 million monthly average.

FHA’s new Financial Assessment requirements for newly originated HECM loans are the main driver for the reduced loan volume, which has reduced HMBS issuance from a 2015 peak of $874 million in May.
Total outstanding HMBS is about $52.6 billion, up from just under $52.4 billion at the end of September. We estimate that this increase is composed of approximately $161 million in negative amortization, plus the $789 million in new issuance, minus about $714 million in payoffs. Total Outstanding HMBS has been increasing each month, but at a slower and slower rate. Without the Wells Fargo pools, HMBS float would have increased by less than $130 million. Outstanding fixed rate HMBS has fallen from $29.8 billion in September to $29.5 billion in October. With payoffs amounts increasing each month, 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 about 59% of October’s total, also a record. 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 compiled this data from publicly available Ginnie Mae data as well as private sources.)