HMBS August 2020 Part II: HMBS Supply Rises Again

HMBS August 2020 Part II: HMBS Supply Rises Again

Outstanding HMBS rose by about $146 million in August, as payoffs fell and issuance continued strong. Payoffs totaled just under $860 million, as mandatory purchases continued to fall. Total outstanding HMBS rose to over $55.2 billion, the highest total in 21 months. Last month we asked: is this the end of the HMBS range-bound equilibrium of the last year and a half, in which HMBS issuance and interest roll-up roughly equaled payoffs? August’s results say yes, it is.

In 2019, HMBS posted the lowest annual total in five years. But 2020 is shaping up differently. In recent months, low interest rates and a higher lending limit boosted production significantly, while Mandatory Buyouts continue to fall. August was a case in point, with strong new loan production and Buyout dollar volume falling further.

“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. Each month fewer and fewer of these peak issuance loans remain, so fewer HECM loans reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”). Peak Buyout is long gone.

Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $271 million, yet another 5-year low. This continues the 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 was published with permission from New View Advisors, compiled this data from publicly available Ginnie Mae data as well as private sources.)