Reverse Mortgage Securities Payoffs Continue to Set Records

Issuers of reverse mortgage backed securities (HMBS) continued to see record prepayments, wiping out the effects of another strong month.

HMBS issuers generated $989 million in securities last month, with 53 original pools and 61 “tails,” according to the most recent analysis from New View Advisors. Those original pools totaled $755 million, which the New York City-based firm attributed to the pre-October 2 push to lock in higher principal limit factors.

Still, outstanding HMBS dropped $94 million amid a record $1.2 billion in payoffs, part of a continuing trend of loans reaching 98% of their maximum claim amounts en masse.


“Last month the HMBS market impersonated the Coyote, holding an anvil of loan payoffs in mid-air but not falling,” New View noted in its analysis, referencing the famous enemy of the Roadrunner from the popular cartoon shorts.

Of the $1.2 billion, $791 million came from loans that reached the 98% mark, another record; for comparison, back in September 2013, those payoffs accounted for 29.8% of the total, or $92 million, according to New View and RecursionCo.

New View also predicted an overall decline in HMBS float once the market adjusts to the new, lower principal limit factors. Still, New View principal Michael McCully has said that the changes will be an overall positive for the secondary market, with investors seeing the “new” HMBS as a longer-term asset amid slower rate growth — along with potential benefits for issuers’ capital requirements.

“There hasn’t been an exodus,” McCully said of the secondary market at the National Reverse Mortgage Lenders Association’s annual meeting in San Francisco last month. “The investor community really likes this product.”

Written by Alex Spanko

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  • Smaller active HECM pools being administered by FHA and smaller dollar total HECM securities are not attractive to new lenders looking to become part of the HECM industry. It does not inspire nor encourage the perception of the industry as vibrant and growing.

    Some mistakenly or otherwise portray the picture of a promising industry due to the alleged achievements of financial assessment. It is doubtful if they have read the latest Actuarial Review or FHA’s Annual Report to Congress on the Financial Status of the MMI Fund for fiscal 2017. The Net Present Values of the future cash flows for HECMs endorsed in either fiscal 2016 or 2017 and still active as of 9/30/2017 are far worse on a per HECM basis then HECMs endorsed in fiscal 2014 and 2015 that were not subjected to financial assessment. All but a very few HECMs endorsed during fiscal 2016 and 2017 were subjected to financial assessment.

    The industry is not thriving nor is it in demise but it has yet to break out of its current five full year pattern of slightly downward sloping peak to valley secular stagnation. While some have condemned the use of the term, it is the best description of what we see currently occurring in the industry as a whole as to total annual endorsements.

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