Reverse Mortgage Securities Signal Short-Term Volume Growth

After hitting a low monthly total in July, Home Equity Conversion Mortgage-backed securities (HMBS) have rebounded in August to their third-largest monthly issuance this year, according to the latest commentary from New View Advisors.

Last month, HMBS issuers created $518 million in new HMBS pools comprising a total of 91 pools issued, which consisted of 46 original issuances and 45 tail pools.

Though a slight uptick from July’s $507 million, HMBS issuances for August were still lower than the $744 million issued a year ago during the same month, according to publicly available data from Ginnie Mae. Also by comparison, HMBS issuance averaged nearly $800 million per month during 2013, while thus far in 2014, issuance has averaged only $520 million per month.

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For August, tail issuance helped the month’s totals, accounting for about $140 million, New View notes.

Unlike original HMBS pools, which are created when a pool of Federal Housing Administration-insured HECMs is securitized for the first time, tail issuances are HMBS pools created from the uncertified portions of HECM loans that have already had their original HMBS issuance.

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

Although previous cuts to HECM principal limits at the beginning of fiscal year 2014, along with restrictions on the initial draw for certain borrowers lowered HECM production and reduced HMBS performance, recent rules put into effect last month that raised principal limits at current market interest rates stand to bode well for HMBS issuance for the remainder of 2014, that is, if interest rates remain low, suggests New View.

Read the commentary from New View Advisors.

Written by Jason Oliva

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  • It seems like the crew over at New View is reaching to find any silver linings they can. When one sees securitized UPBs drop from an average of $800 million to $520 million, that sounds like a 35% drop to most of us. If year to year tails were reported, then the origination drop would most likely be worse.

    On August 14, 2014 Walter Investment Management Corporation (WIMC) filed Form 10-K filed with the SEC in which it stated: “The Reverse Mortgage segment generated revenue of $38.7 million for the quarter, which included a $26.9 million gain from the net impact of HECM loan and related HMBS obligation fair value adjustments, $8.8 million in servicing fees and $3.0 million of other revenue. Total expenses for the second quarter were $125.3 million, including $82.3 million of goodwill impairment. The segment reported APTE of ($3.7) million and AEBITDA of ($2.6) million for the second quarter as compared to revenues of $36.0 million, expenses of $45.8 million, APTE of $15.9 million and AEBITDA of $16.9 million for the second quarter of 2013. These results compare to revenue of $27.9 million, expenses of $37.7 million, APTE of ($2.8) million and AEBITDA of ($1.5) million in the first quarter of 2014.

    Funded origination volumes in the segment declined 57% as compared to the second quarter of 2013 resulting from continued lower volumes and originated UPB due to regulatory changes to product offerings and underwriting guidelines. Volumes increased 22% as compared to the first quarter of 2014 driven by a 20% increase in retail originations and a 32% increase in correspondent originations.”

    According to public records Security 1 was acquired for just over $30 million. So if there was over $82 million impairment (write off) to the asset class called goodwill and business segment named reverse mortgage, that means things are bad enough that over $50 million of the impairment is with the reverse mortgage servicing. As of the beginning of 2014, there was only $138.8 million shown as reverse mortgage goodwill resulting in a write off of over 59% of reverse mortgage goodwill at WIMC. The impairment was almost 2/3rds of the total costs for this business segment for the quarter, not exactly an insignificant cost to its operation.

    So despite all of the positives we are seeing the largest lenders are taking enormous hits to revenues and those with reverse mortgage goodwill, enormous expenses from writing off goodwill. It is interesting that after all of the loss piling into the WIMC Reverse Mortgage operations, WIMC writes a rather glowing prediction about the future of the industry which makes one wonder if that was not done to keep the auditors from mandating an even greater write off of the WIMC reverse mortgage goodwill.

    As one observer wrote the other day, by the level of the general positive outlook in the industry right now, it seems as if industry participants are choking on their irrational exuberance.

  • Please read the New View Commentary published September 16th “HMBS Market Avoids Downturn” rather than the summary article. In no way are we trying to find silver linings in current HMBS production – on the contrary, we report volume is off significantly from 2013. We do believe HMBS issuance is a reliable barometer for HECM production, and our previous reports in April, May, and June on HMBS issuance note the potential for HMBS float to decline.

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