Reverse Mortgage Securities Market Sets Record, But Trouble Brewing

The Home Equity Conversion Mortgage-backed securities (HMBS) market saw a record number of issuances in February, but one leading analysis firm warns that a drop could be coming soon.

HMBS issuers logged 129 loan pools last month for the second-highest dollar value — $1.47 billion — ever recorded, falling short of December 2009’s record according to the most recent data from New View Advisors. Those pools included a record 73 original loan pools and 56 tails, the New York City-based analysis firm noted.

“However, the new principal limit factors are reducing origination volume,” New View wrote in its February 2018 report, echoing indications from around the industry that the lower PLFs rolled out last October are beginning to have an effect on overall volumes.

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Last month’s original loan pools totaled $604 million, a drop from the previous month’s $657 million and December’s $747 million, New View found — perhaps predicting a coming decline on the horizon.

“New production pools will probably continue to decrease as issuers run out their remaining supply of unsecuritized loans with the old, higher principal limit factors,” the firm wrote.

Still, tail pools — issuance created from portions of existing HECM loans — could prove to be a stabilizing factor for the industry during these troubled times. 

“Tails are not from new loans, but they do represent new amounts lent,” New View observed, calling February’s $209 million in tail pools “strong.” 

“HECM loans can generate profits through [their] monthly tails for years, helping HMBS issuers in challenging periods like this year,” the firm concluded.

Check out New View’s full data and analysis.

Written by Alex Spanko

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