July 2018: HMBS Supply Fades Away With Summer

HMBS issuance fell sharply in July 2018 to just over $542 million, the lowest issuance month in nearly four years. No highly seasoned pools were issued. In all, 98 pools were issued in July. Over $1 billion in payoffs shrank HMBS float by a record $355 million. Since February 2017, HMBS float has been range-bound between $55 billion and $57 billion, but could fall below that with the continued payoff deluge and issuance drought.

Payoffs have exceeded $1 billion per month for 10 of the last 12 months, a trend likely to continue as many loans reach their buyout threshold, equal to 98% of their Maximum Claim Amount. Meanwhile, 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 $318 million, down from June’s $353 million, 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 $847 million in July 2017. Last month’s tail pool issuances totaled $225 million, within the range of recent tail issuance.

July issuance saw 44 original pools and 54 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.

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