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.

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“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