Reverse Mortgage Securities Issuance Rallies to 18-Month High

Last month, issuance of Home Equity Conversion Mortgage-Backed Securities (HMBS) reached its largest monthly total in a year and a half, effectively lifting HMBS issuance to an 18-month high, according to the most recent commentary from New View Advisors on publicly available Ginnie Mae data. 

During May, HMBS issuers created $874 million in new HMBS pools, which New View notes is the largest HMBS issuance since November 2013. Last month’s tally is up from $798 million issued in April, and up from the $582 million issued in May 2014. 

The number of pools issued in May were slightly less in number than the previous month, with 105 pools issued consisting of 62 original issuances and 43 tail pools. Whereas in April, 113 pools were issued consisting of 63 original issuances and 50 tail pools. 

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May’s higher totals, according to New View, were driven by Reverse Mortgage Funding’s issuance of three new pools backed by “highly seasoned CMT loans totaling $121 million.”

Original HMBS pools are created when a pool of HECM loans is secured for the first-time, whereas tail HMBS issuances are pools of HECM securities created from the uncertificated portions of HECMs that have already had their original HMBS issuance. 

In May, tail issuances accounted for approximately $150 million, or about 17%, of the month’s total, New View noted.

Meanwhile, total outstanding HMBS is about $51.4 billion, up from $50.9 billion at the end of April.

“We estimate this increase is composed of approximately $160 million in negative amortization, plus the $874 million in new issuance, minus about $625 million in payoffs,” New View writes in its commentary. “If monthly issuance falls back below $500 million, total HMBS outstanding could shrink for the first time.”

Thus far this year, HMBS issuances is averaging just over $736 million per month, which New View notes is well above the $550 million monthly average in 2014. 

Because newly originated loans comprise a large majority of HMBS issuance in any given month, New View notes that HMBS issuance is a good barometer of recent HECM loan production.

But the impact of the Financial Assessment on HMBS issuance still remains to be seen.

“As we noted last month, FHA’s new Financial Assessment requirements for newly originated HECM loans will certainly reduce new loan supply, at least in the short run,” New View writes. “Given the lag between loan origination and securitization, it will take a few months before we know the full impact.”

View the New View Advisors commentary.

Written by Jason Oliva