April 2019 Part II: March Backwards continues in April – Payoffs Drive Down HMBS Float

April 2019 Part II: March Backwards continues in April – Payoffs Drive Down HMBS Float

HMBS float fell again in April as a big payoff total continued to outweigh issuance. With over $985 million in payoffs and a continued drought of new issuance, total outstanding HMBS ended the month just over $54.3 billion, down over $2 billion from its peak a year ago. HMBS float had been range-bound between just under $55 billion to $57 billion for over two years. The current float is the lowest since July 2016.

Total HMBS float will likely finally fall further given current trends. As we noted earlier this week, HMBS issuance was just under $567 million in April, with a few highly seasoned new issues.

We predict continuing declines in Mandatory Buyouts in the foreseeable future. “Peak Buyout” was 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. Although April came close, billion-dollar-plus payoff months will be the exception rather than the rule. Many loans continue to reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”), but Peak Buyout appears to have ended.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases accounted for $627 million, or about 63%, of the payoffs last month. This continues a gradual downward trend from the buyout peak in last year’s third quarter, which averaged over $750 million in Mandatory Purchases per month.

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