HECM Payoff “Rabbit” Continues to Travel Through Snake

Issuers of Home Equity Conversion Mortgage-backed securities saw another month of strong new issuance in April largely wiped out by stubbornly high payoff amounts, continuing a trend that’s showing no signs of stopping.

That’s according to new data from New View Advisors, which found an overall total of $794 million in HMBS issuance, propelled primarily by strong growth in the creation of new loan pools: HMBS issuers generated $584 million in new pools, according to the New York City-based advisory firm, up from $508 million in March.

The creation of “tail” pools — or the issuance of the uncertificated portions of HECMs that had previously been securitized — remained consistent with recent months’ performance, with issuers logging a total of $210 million in “tails” in April.

Advertisement

As has been the case for the last eight months, however, total payoffs exceeded the HMBS issuance, with a total of $957 million in payoffs — $565 million of which came from loans that hit 98% of their maximum claim amount and saw reassignment, a record amount according to New View and the Recursion Co. financial data firm.

In the past, New View partner Michael McCully has likened the recent boost in HMBS payouts to a rabbit traveling through a snake’s digestive system — it’s a big bump now, but it will eventually pass through as a significant crop of fixed-rate loans generated between 2009 and 2011 reach maturation and see reassignment. While McCully and New View have warned that these numbers will normalize, it appears as though the snake isn’t done digesting the HMBS rabbit just yet.

Read New View’s full analysis here.

Written by Alex Spanko