HMBS March 2020: Issuance Tails Off

HMBS March 2020: Issuance Tails Off

HMBS issuance totaled $625 million in March 2020, with a notable decline in tail pools accounting for much of the reduced volume. As the month wore on, the Coronavirus pandemic increasingly took its toll on the capital markets, reducing liquidity as lenders and investors pulled back. Only 77 pools were issued in March, nearly a six year low for number of HMBS pools issued. These included about $455 million of new unseasoned HECM first participation pools, reversing a strong upward trend in production. There were no highly seasoned new issues. Still, March 2020 beat March 2019, when HMBS issuers sold 88 pools totaling $558 million.

Reverse mortgage lenders weathered a long period of reduced new origination volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of FY2018. However, over the last year new production of HECMs and HMBS has slowly climbed back to its long-term average range of $500 – $600 million. The fallout from the pandemic will sorely test this resurgence.

The HMBS market totaled about $8.3 billion for calendar year 2019, down from $9.6 billion in 2018 and $10.5 billion in 2017. However, securitization of private reverse mortgages is a much bigger factor now. As a result, we estimate that the total issuance of reverse mortgage securities backed by new collateral in 2019 was about the same as 2018. This may not be the case in 2020, with at least two major private reverse mortgage programs suspended for the time being.

March’s production of original new loan pools was about $455 million, compared to $501 million in February, $550 million in January, $484 million in December, $506 million in November, $426 million in October, $393 million in September, $390 million in August, $321 million in July. It was barely $277 million one year ago in March 2019.

Last month’s tail pool issuances totaled $170 million, nearly a five year low, and well below the typical $200-$250 million range.

March issuance divided into 31 First-Participation or Original pools and 46 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. Tail HMBS issuance is essential for HMBS issuers to finance their monthly advances, such as borrower draws, FHA mortgage insurance premiums, etc.

(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.)