HMBS January 2021: LIBOR Hangover After Wild New Year’s Eve Party

HMBS January 2021: LIBOR Hangover After Wild New Year’s Eve Party

HMBS issuance totaled $949 million in January 2021, as issuers began to wrap up securitization of new LIBOR-indexed HECM loans. January 2021 is the next-to-last month in which Ginnie Mae will allow pooling of new HMBS pools backed by first participations of LIBOR-based HECMs. 81 pools were issued in January; 12 pools totaling about $191 million were pools backed by new LIBOR loans.

January also saw the appearance of HMBS backed by new CMT-indexed loans; 19 pools totaling just under $300 million were issued in this category. No new first-participation CMT pools had been issued for many years. January’s total was also helped by a large ($208 million) highly seasoned CMT pool.

A record $10.6 billion in HMBS was issued in 2020, easily beating 2019’s total of $8.3 billion, 2018’s $9.6 billion, even eclipsing the $10.5 billion set in 2017. 2010 remains the all time HMBS volume year with $10.8 billion issued, when Principal Limits were high and no borrower financial assessment safeguards had been established. HMBS issuers will be hard pressed to equal last year’s total, but the picture will not be clear until the LIBOR deadline passes and the LIBOR backlog is cleared.

January production of original new loan pools was $552 million, significantly down from December’s record $878 million, November’s $765 million, and October’s $674 million, and approximately equal to the $550 million issued in January 2020.

January issuance divided into 39 first-participation or original pools, and 42 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. Last month’s tail pool issuances totaled $189 million, below the typical $200-$250 million range.

Helped by historically low interest rates, lower default rates, and the reemergence of proprietary loans, the reverse mortgage market appears strong. However, this strength may soon be challenged by economic conditions and the transition out of LIBOR. The Constant Maturity Treasury “CMT” index is now the index for new adjustable rate HECM loans and will remain so until a transition to another index, likely the Secured Overnight Financing Rate, or “SOFR.”

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