Record Tail Issuance Drives October’s Reverse Mortgage Securities

Issuers of Home Equity Conversion Mortgage mortgage-backed securities (HMBS) created $789 million in new HMBS pools during October, driven by a record tail issuance of $291 million and some rekindled activity from Wells Fargo, according to the latest commentary from New View Advisors.

The record tail issuance includes two pools totaling nearly $100 million issued by Wells Fargo, marking the company’s first HMBS issuance since June 2012.¬†Without the contributions from Wells Fargo, HMBS issuance would have been “lackluster” at $689 million, below this year’s running average,¬†according to New View Advisors.

In 2015, HMBS issuance is averaging just over $753 million per month, substantially higher than last year’s $550 million monthly average, according to the data New View Advisors compiles from publicly available Ginnie Mae data as well as private sources.

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Meanwhile, October’s tally of $789 million surpasses September’s $680 million, as well as its year-ago total of $690 million in October 2014.

October 2015 HMBS comprised 112 pools, consisting of 55 original issuances and 57 tail pools. Original HMBS pools are created when a pool of FHA-insured HECMs is securitized for the first time. Tail HMBS issuances are HMBS pools created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance.

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

Total outstanding HMBS is approximately $52.6 billion, up from just under $52. 4 billion at the end of September.

“We estimate that this increase is composed of approximately $161 million in negative amortization, plus the $789 million in new issuance, minus about $714 million in payoffs,” writes New View Advisors in its commentary.

Total outstanding HMBS has been growing each month, albeit at a slower and slower rate. Without the Wells Fargo pools, New View Advisors notes that HMBS float would have increased by less than $130 million.

Compared to September, outstanding fixed rate HMBS has fallen from $29.8 billion to $29.5 billion in October.

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

Read the New View Advisors commentary.

Written by Jason Oliva

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  • Relying on this information as comparative data even through it may be true can still be misleading. While HECM securitization occurred before fiscal year 2009, that is the first year that securization really took off and replaced selling closed HECMs to Fannie Mae.

    The reason for securitization information being potentially misleading is the total proceeds taken at closing were on average much higher prior to February 2014 (includes four month lag time for endorsement on applications with case numbers assigned before 9/30/2014) and now. The average was even higher prior to August 2013 (again includes lag time) than between August 1, 2013 and January 31, 2014 (inclusive). The most significant reasons for the higher average are:1) higher PLFs, 2) the dominance of fixed rate Standards requiring full draws at closing, and 3) not having a 60% first year disbursements rule. However, comparing post January 2014 data to data from that same period should be very reliable.

    It is not surprising to see tails on the rise. This is once again an era of adjustable rate HECMs. With fixed rate HECMs there can be no tails since they are closed end mortgages. As the number of active adjustable rate HECMs rises, we can expect to see tails volume increasing.

    In their fiscal year 2015 report, the HECM actuaries are predicting that average Maximum Claim Amounts (MCAs) should rise for the foreseeable future due to predicted behavior of home price appreciation. This phenomenon should result in higher average balances due at closings as long as average increases in expected interest rates remain within a limited range.

    New View Advisers, LLC have once again done a very useful service for the industry by separating and tying together relevant data. With rising MCAs, rising tails, amortization growth in balances due all but offset by hugh payoff amounts, it is hard to see how our active endorsement pool is growing. Right now that base is less than 10,000 of what it was just 3 years ago. That basically means we are technically in an overall declining industry.

    Although there are and have been absolutely no reliable signs that we are in recovery, we need better, much better endorsement volume to keep the interest of HMBS invesotrs. Without once again energizing that interest, we stand to see premiums dwindle.

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