HMBS issuers began 2017 with a strong month, creating 121 pools in January totaling nearly $869 million. Production of original new loan pools was $525 million, up from December’s $515 million and much higher than January 2016’s total of $469 million. The pools divided into 57 original pools and a record 64 tail pools. The strong issuance was helped by a few large seasoned tail pools from legacy (i.e. non-originator) issuers.
Original pools are those HMBS pools backed by the first participation in a previously uncertificated HECM loan. Tail HMBS issuances are HMBS pools consisting of subsequent participations. In other words, tail pools are created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance. January’s tail issuance was about $344 million, the 3rd highest dollar total ever.
In December 2016, the HMBS market shrank for the first time as record prepayments drove total outstanding HMBS to just under $55 billion. Last month however, total outstanding HMBS rose by about $174 million from December, driven by the large tail issuance and a drop off from the record payoffs of December 2016. We estimate that last month’s change in the outstanding HMBS float was composed of approximately $175 million in negative amortization, plus the $869 million in new issuance, minus $870 million in payoffs. Payoffs have exceeded new issuance for five months in a row.
Payoffs figure continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion Co crunched the numbers: the 98% MCA assignments accounted for a record 62.4% of the dollar amount of payoffs last month. This percentage has been rising steadily. According to Recursion, the 98% MCA puts were only 29.8% of payoffs in September 2013. This could mean further shrinkage in HMBS float throughout 2017.
(Note: This article was published with permission from New View Advisors, which compiled the data from publicly available Ginnie Mae data as well as private sources.)