Financial Assessment Drags August Reverse Mortgage Securities Down

Home Equity Conversion Mortgage-backed securities (HMBS) issuance in August was well-above its year-ago level, but the month’s tally this year was dragged down by recent changes to the HECM program, according to the latest New View Advisors commentary on publicly available Ginnie Mae data.

HMBS issuers created $730 million in new HMBS pools during August, which New View notes is the lowest issuance since March, and also down from the $809 million issued in July. However, on a year-over-year basis, HMBS issuance in August was higher than August 2014’s $517 million total.

“FHA’s new Financial Assessment requirements for newly originated HECM loans are the main driver for the reduced loan volume, which has reduced HMBS issuance from a 2015 peak of $874 million in May,” writes New View Advisors in its commentary on the data.

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In August, 94 pools were issued consisting of 50 original issuances and 44 tail pools. Tail issuances accounted for about $178 million, or 24%, of August’s total.

Original HMBS pools are created when a pool of FHA-insured HECMs is securitized for the first time, whereas tail HMBS issuances are HMBS pools created from Uncertificated Portions of HECMs that have already had their original HMBS issuance.

As of August, total outstanding HMBS is about $52.2 billion, up from just under $52 billion at the end of July.

“We estimate that this increase is composed of approximately $161 million in negative amortization, plus the $730 million in new issuance, minus about $681 million in payoffs,” writes New View Advisors.

New View notes that total outstanding HMBS has been increasing each month, though at an increasingly slower rate. For example, monthly increases in the past four months have been $409 million, $350 million, $283 million and $209 million in May, June, July and August, respectively.

“With payoff amounts increasing each month, total HMBS outstanding could shrink for the first time later this year,” writes New View.

Thus far in 2015, HMBS issuance is averaging just over $757 million per month, which New View notes is “well above” last year’s $550 million monthly average.

View the New View Advisors commentary.

Written by Jason Oliva

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  • Mr. Mike McCully at New View Advisors, LLC just confirmed that a HECM can be securitized before endorsement. So here is yet another strong indicator of the fact that we are not seeing recovery in HECMs just yet.

    Because the time for the average HECM to go from case number assignment to securitization is different (and shorter) than the lag for the average HECM to go from case number assignment to endorsement. Because it is available so much more quickly, perhaps it is this data that needs to be emphasized when determining the impact of financial assessment on HECM activity.

    We have been warned before by members of this firm that investor demand for HECMs could wane unless HECM lenders start closing more HECMs.

      • Why not? What is “wealthy” under HECM law?

        Congress never intended that HECMs be available to certain economic classes of seniors not all. Please read the purpose of the HECM insurance program codified at 12 USC 1715z-20(a) which states: “(a) Purpose

        The purpose of this section is to authorize the Secretary to carry out a program of mortgage insurance designed—

        (1) to meet the special needs of elderly homeowners by reducing the effect of the economic hardship caused by the increasing costs of meeting health, housing, and subsistence needs at a time of reduced income, through the insurance of home equity conversion mortgages to permit the conversion of a portion of accumulated home equity into liquid assets; and

        (2) to encourage and increase the involvement of mortgagees and participants in the mortgage markets in the making and servicing of home equity conversion mortgages for elderly homeowners.”

        You have the right to your opinion but the law does not recognize or support it.

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