In efforts to provide a better understanding of the underlying characteristics of Home Equity Conversion Mortgages (HECMs) and Ginnie Mae HECM-mortgage backed securities (HMBS), New View Advisors has introduced a new index focused specifically on reverse mortgage draw behavior.
The Reverse Mortgage Draw Index is the latest offering from New View Advisors, joining its Reverse Mortgage Prepayment Index, which has become an industry standard since its introduction in 2010. Together, the two indices strive to shed light on the “big three” reverse mortgage performance indicators: prepayment, default and draw behavior.
Analyzing draw rates are especially important as they affect prepayment rates, HMBS “tail” issuance, as well as default frequency and severity.
“Draw behavior depends on several factors, but for investors, lenders, and HMBS issuers, none is more important than loan age,” says New View Advisors in a written statement. “For all market participants, an accurate measure of draw rates is essential for managing cash flow, forecasting future capital needs and profitability, and measuring enterprise risk.”
The Reverse Mortgage Draw Index value is expressed as a monthly draw rate, equal to the amount of Line of Credit draws taken in any given month, divided by the Total Line of Credit Amount available at the beginning of that month, according to New View Advisors, which notes that the Index only applies to loans with a line of credit feature, and does not include fixed monthly term or tenure payments. (Click chart below to maximize)
New View Advisors defines Unseasoned Loans as reverse mortgages originated no more than two years ago, whereas Seasoned Loans are loans originated more than two years ago.
The initial index data release only pertains to monthly adjustable rate HECM loans that have been collateralized into Ginnie Mae HMBS, the vast majority of which have 1-Month LIBOR as their underlying index, but with few based on the 1-Month Constant Maturity Treasury “CMT” Index, according to New View Advisors, who has plans to introduce a 12-month LIBOR loan index in a subsequent release.
“We estimate the industry is funding between $90 – $100 million in draws each month for this product segment, which accounts for about one third of outstanding HMBS,” says New View Advisors. “These draw amounts are then securitized by Ginnie Mae issuers into ‘Tail’ HMBS, an increasingly important component of industry profitability.”
In compiling data, New View Advisors used publicly available Ginnie Mae data as well as private sources.
Written by Jason Oliva