September 2018 HMBS Part II: Market Volume Numbers Fall in Autumn

HMBS float shrank again despite a significant decline in payoffs. Just under $1 billion in payoffs reduced HMBS float to $55.3 billion, down from about $55.5 billion at the end of August. As we noted last week, HMBS issuance rose slightly in September 2018 to just over $587 million, a small increase over August, but much less than payoffs. HMBS float has been range-bound between $55 billion and $57 billion, but could slip below that soon as payoffs continue to outweigh new issuance.

We predicted earlier the industry “may be at Peak Buyout and see a relative decline in Mandatory Buyouts in the near future.” Last month’s overall payoffs and Mandatory Purchases were at seven month lows. Peak Buyout is an echo of the peak issuance from 2009 through the first half of 2013. Much of this production has already been repurchased or repaid by borrowers. Payoffs nonetheless have exceeded $1 billion per month for 11 of the last 14 months, as many loans reached their assignment threshold, equal to 98% of their Maximum Claim Amount (“MCA”).

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases accounted for $653 million, or about 69%, of the payoffs in September. This is down sharply from last month’s record of $869 million.

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