February 2018: Record HMBS Month — But Trending Down

HMBS issuers sold a record 129 pools in February 2018, and posted the second highest dollar issuance, $1.47 billion. The dollar total is topped only by December 2009, at the peak of the old HECM regime’s fixed rate issuance boom. Two large highly seasoned original pools totaling $657 million were issued. February issuance divided into 73 original pools (also a record) and 56 tail pools. Without the two seasoned pools, total issuance would have been roughly in line with the average issuance over the last year.

However, the new Principal Limit Factors (“PLFs”) are reducing origination volume. Production of original new loan pools was down at $604 million, down from $657 million in January and $747 in December 2017. New production pools will probably continue to decrease as issuers run out their remaining supply of unsecuritized loans with the old, higher Principal Limit Factors.

Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. 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. Last month’s tail issuance was strong: about $209 million. Tails are not from new loans, but they do represent new amounts lent. HECM loans can generate profits through its monthly tails for years, helping HMBS issuers in challenging periods like this year.

(Note: This article was published with permission from New View Advisors, which compiled data from publicly available Ginnie Mae data as well as private sources.)