HMBS Issuance Records Increase in May, With a Catch

The production of new Home Equity Conversion Mortgage-backed securities (HMBS) saw a jump in May to just over $855 million, managing to rise above the generally lower issuance levels observed over the course of the past few months. This was primarily due to three highly seasoned pools, according to publicly available GNMA data and private sources compiled by New View Advisors.

“If not for three highly seasoned pools that bumped up issuance volume by over $282 million, May issuance would have been consistent with the low issuance of recent months,” New View wrote in its commentary accompanying May’s data. “94 pools were issued in May, including about $325 million of new unseasoned HECM first participation pools. HMBS float shrinkage will probably hold steady at about $54.5 billion if May’s payoffs are in line with recent months.”

The Government National Mortgage Association (GNMA, or “Ginnie Mae”) also launched its new HMBS Platinum Program on April 10th, meaning that market participants can now aggregate Ginnie Mae II HMBS pools into Platinum pools, New View writes.

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“Like the underlying HMBS, these new pools will be segregated based on collateral type,” New View’s Commentary says. “As of today, no HMBS Platinum pool has been issued.”

Live Well Financial, which ceased operations abruptly in early May, issued 6 HMBS pools that month for a total of approximately $23 million. Any additional ceasing of activity from issuers could have an impact, according to Michael McCully, partner at New View Advisors.

“Volume and the capital markets have been mostly stable, but if a handful of additional HMBS issuers cease originations, it could have an impact on liquidity,” McCully said in an email to RMD. “Markets like transparency, so learning what happened at Live Well would also help.”

The reverse mortgage industry continues to face an era of generally-reduced volume, largely brought about by changes to principal limit factors handed down by the Federal Housing Administration (FHA) in October of 2017. The drop observed in HMBS issuance between full year 2017 and 2018 totals could mean that the industry will have a difficult time reaching 2018 totals by the end of this year, according to New View.

“Production of original new loan pools was about $325 million in May, compared to $300 million in April, $277 million in March, $274 in February, and $304 million in January. Last month’s tail pool issuances totaled $247 million, within the range of recent tail issuance,” the commentary wrote. “May 2019 issuance divided into 36 First-Participation or Original pools, and 58 tail pools.”

Read the full commentary at New View Advisors.

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