Seasoned HMBS Boon in June: Issuers Croon Old Tune to Avoid Issuance Swoon

After a tepid May, HMBS issuance rose sharply in June 2018 to over $964 million with the help of more than $356 million in highly seasoned new issuance, exceeding that of new production. In all, 116 pools were issued in June.

As we noted in previous blogs, reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors (“PLFs”) for Home Equity Conversion Mortgages (“HECMs”) effective this fiscal year. Rising interest rates will not help either as they generally require lower PLFs, although many HECM lenders have reduced interest rates and margins to maintain PLFs.

Production of original new loan pools was just under $353 million, down from May’s $367 million, April’s $401 million, and down sharply from $604 million in February, $657 million in January and $747 million in December 2017. HMBS issuance topped $779 million in June 2017. For the foreseeable future, this low level of production looks like the new normal. Last month’s tail pool issuance was a healthy $255 million, on the high end of recent tail issuance.

June issuance saw 54 original pools and 62 tail pools. 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. Tails are not from new loans, but they do represent new amounts lent. As we noted last month, tail HMBS issuance can generate profits for years, helping HMBS issuers in challenging periods such as now.

(Editor’s note: This article was republished with permission from New View Advisors, which compiled this data from publicly available Ginnie Mae data as well as private sources.)