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