April HMBS Tops $775 Million, Remains Below Year-Ago Level

Issuance of HECM mortgage-backed securities (HMBS) rose in April following a relatively weak March, but still remain lower than year-ago levels, according to the latest market commentary from New View Advisors.

HMBS issuers created approximately $775 million in new HMBS pools during April 2016, according to recent data compiled by New View Advisors from publicly available Ginnie Mae data as well as private sources. Although April’s HMBS issuance total exceeded March’s $639 million, it remained below the $798 million issued in April 2015.

Last month, issuers sold 94 pools, which were split evenly into 47 original pools and 47 tail pools. Original pools are HMBS pools backed by the first participation in a previously uncertificated HECM loan, typically a recently originated HECM loan.


“Newly originated loans comprise a large majority of HMBS issuance in any given month,” writes New View Advisors in its market commentary report posted Monday. “As a result, HMBS issuance is a good barometer of recent HECM production.”

Original HMBS pools are created when a pool of Federal Housing Administration-insured Home Equity Conversion Mortgages is securitized for the first time; whereas tail issuances are HMBS pools created from the uncertificated portions of HECMs that have already had their original HMBS issuance.

During the month, only $455 million in original new production loan pools were issued, however, New View Advisors notes this was an improvement over March’s $420 million—the lowest tally since September 2014. A $106 million seasoned pool helped pad the April’s totals, backed by 10-year-old CMT loans.

Of April’s total, tail HMBS issuances accounted for approximately $214 million—the fourth highest monthly tail issuance on record, notes New View Advisors.

Financial Assessment requirements for HECM loans originated since April 27 2015 continue to be the main driver for reduced loan volume, which has reduced monthly HMBS issuance from $874 million in May 2015, according to New View Advisors data.

As of April 2016, total outstanding HMBS is approximately $54 billion, up from just under $53.8 billion at the end of March.

“We estimate that this increase is composed of approximately $168 million in negative amortization, plus the $775 million in new issuance, minus a record $753 million in payoffs,” New View Advisors stated in its market commentary.

Read the New View Advisors HMBS commentary for April.

Written by Jason Oliva

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  • What the New View Advisors’ comment provides is further confirmation that we are about to experience even worse drops in endorsements when compared to last fiscal year. The rest of this comment discusses the basis of that prediction.

    Of the $455 million in original pools of HECMs last month, $106 million were endorsed a decade ago. That means that only $349 million of the $455 million in loans were originated in fiscal 2016. On the other hand, March 2016 only had $420 million in original pools but they were all originated in fiscal 2016. That represents a drop of 16.9% in 2016 originations in just one month. Yet that drop is similar to another drop that is indicative of near term endorsement volume.

    Based on the four month lag rule of thumb for the time needed by the average HECM to go from case number assignment to endorsement, the majority of HECMs endorsed in this month are most likely to have a case number assigned in January 2016.

    The month when the majority of HECMs endorsed last month received their case number was December 2015. Yet what we find is that the number of case numbers assigned in January 2016 is 5,237 for a drop of 13.7% from the total of case numbers assigned in December 2015 of 6,068. Worse the drop in case number assignments from a year ago (January 2015) is 19.9%.

    The drop in total case number assignments for the month of February 2015 when compared to case number assignments for February 2016 is 35.9% [although case number assignments rose 19.5% from January 2016 to February 2016 (at 6,256)].. This drop is massive and although not expected to be quite as bad in March, it could be as high as 50% for April when case number assignments reached a high for fiscal 2015 of 13,488.

    With a 9.7% drop in total endorsements for the first seven months of this fiscal year when compared to the same period for fiscal 2015, the drop in endorsements is only expected to be worse for the final five months of this fiscal year when compared to the same period of last fiscal year. The first seven months of this fiscal year is already the worst start for endorsements for a fiscal year in over a decade.

    So while there is talk of recovery or stability, it is only talk. There are no signs of recovery just yet. We expect HUD to release the production numbers for March 2016 in a few days which will include case number assigned in that month.

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