In November 2015, the Tail not only wagged the Dog, the Tail was the Dog. Issuers created approximately $1.232 billion in new HMBS pools during November 2015, the largest month of HMBS issuance since February 2010. Driven by HMBS backed by seasoned HECM loans, November saw a record-smashing tail issuance of $660 million. Wells Fargo, marking their second month of HMBS issuance since June 2012, issued over $462 million. A total of 113 pools were issued, consisting of 51 original issuances and 62 tail pools.
However, without the Wells Fargo pools and other issues backed by highly seasoned HECM loans, HMBS issuance totaled only about $647 million. For 2015 year to date, HMBS issuance is averaging just over $797 million per month, well above 2014’s $550 million monthly average.
FHA’s new Financial Assessment (“FA”) requirements for newly originated HECM loans are the main driver for the reduced new production. November aside, the effect of FA has reduced HMBS issuance from its prior 2015 peak of $874 million in May.
Total outstanding HMBS is about $53.3 billion, up from just under $52.6 billion at the end of October. We estimate that this increase is composed of approximately $160 million in negative amortization, plus the $1.232 billion in new issuance, minus about $653 million in payoffs. Without the seasoned pools, HMBS float would have increased by less than $160 million. Payoff amounts usually increase each month, so total HMBS float could soon 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 previously securitized HECMs. Newly originated loans usually comprise a large majority of HMBS issuance in any given month. As a result, HMBS issuance is a good barometer of recent HECM production.
(Editor’s note: The following was published by New View Advisors, which compiled this data from publicly available Ginnie Mae data as well as private sources.)