HMBS October 2019 Part II: HMBS Float Drops Below $54 Billion

HMBS October 2019 Part II: HMBS Float Drops Below $54 Billion

Outstanding HMBS fell by $180 million in October, as continued strong payoffs outweighed a solid issuance month. Payoffs once again totaled just under $1 billion. Total outstanding HMBS fell to $53.9 billion, a three-year low. This is the first month HMBS float has been less than $54 billion since May 2016.

Total HMBS float will likely fall further given current trends. HMBS issuance in the first half of 2019 was the lowest half of issuance in five years. With two months to go, HMBS issuance figures to post the lowest annual total in five years.

We do 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 by the issuers or repaid by borrowers. From now on, billion-dollar-plus payoff months will be the exception rather than the rule, although this month came close. 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 $536 million, or about 54%, of the payoffs last month. This percentage represents a three year low and continues a gradual downward trend from the buyout peak in the third quarter of 2018, which averaged over $750 million in Mandatory Purchases per month.

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