Outstanding HMBS rose slightly in May, avoiding further decline thanks to some highly seasoned new issuance. Despite just under $1 billion in payoffs, total outstanding HMBS edged up to just over $54.4 billion. This is down over $2 billion from its peak a year ago.
Total HMBS float will likely finally fall further given current trends. As we noted earlier this week, HMBS issuance was just over $855 million in May, including over $282 million from three 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 last month came close, billion-dollar-plus payoff months will be the exception rather than the rule. Many HECM 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 $599 million, or about 62%, of the payoffs last month. This is the first month since December 2017 where mandatory purchases have not exceeded $600 million, and 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: This article was republished with permission from New View Advisors, which compiled data from publicly available Ginnie Mae data as well as private sources.)