Outstanding HMBS rose by about $50 million in October, as payoffs rose and new issuance remained strong. Payoffs increased to $950 million, despite the continued fall of mandatory buyouts. Total outstanding HMBS rose to over $55.4 billion, the highest total in two years.
In 2019, HMBS posted its lowest annual total in five years. But 2020 is shaping up differently. In recent months, low interest rates and higher lending limits boosted production significantly. This trend will likely continue for the rest of 2020 as HMBS issuers rush to beat the year-end LIBOR deadline, after which no new first-participation LIBOR pools can be issued. Beginning in 2021, the industry may struggle to reach the same levels of production.
“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”). Our friends at Recursion broke down the prepayment numbers further: the 98% MCA mandatory purchases totaled $255 million, just above last month’s 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. With buyouts at one-third their peak level, Peak Buyout is long gone.
(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.)