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.


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

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  • This seems to be in line with the pace of HECMs terminating and being assigned in excess of new endorsements per monthly FHA Single Family Production Reports.

  • With fewer and fewer HECMs being held by the investment community, will their interest in procuring HECMs wane especially in light of endorsement stagnation? Thus not only is the industry fighting the impact of lower endorsements (and lower UPBs per HECM due to more ARMs and Standby HECMs) but also of active fixed rate HECMs going into assignment long before their ARM counterparts. This is but another of the nightmares created by the fixed rate craze of fiscal years 2009, 2010, 2011, 2012, and the first part of fiscal 2013. We have yet to see the full impact of fixed rate Standards moving into assignment.

    No fixed rate HECMs endorsed in either fiscal years 2009 or 2010 were Standards or Savers since those were first offered on 10/4/2010 under Mortgagee Letter 2010-34. Most fixed rates endorsed in fiscal 2010 and the first part of fiscal 2011 had reduced principal limit factors under Mortgagee Letter 2009-34.

    The full impact of fixed rate Standards going into assignment should start to be felt at the beginning of fiscal 2018. By the end of the decade, we should see the peak rate of fixed rate Standards going into assignment. Will new endorsements be sufficient at that point of time to offset what should be increased assignment activity? Like John Lunde says: “I would bet against it right now.”

    Is this in fact an unintended industry consequence of overzealous originators and lenders, especially brokers? At first it was thought that having a more definite timetable for the withdraw of HECMs (due to a greater percentage of assignments) from investment pools would create more interest in HECMs in the investment community.

    Few foresaw the negative impact that fixed rate HECMs would have on the MMI Fund. Those who did and spoke up were generally attacked and ridiculed. It is unfortunate that FHA management ignored the clear signs of the losses that fixed rate HECM endorsements would eventually produce. The lack of initiating change happened under FHA Commissioner Galante.

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