September HMBS Data Continues Showing Strength of Low Rates

The production of new Home Equity Conversion Mortgage-backed securities (HMBS) totaled approximately $610 million in September as lower interest rates continue to strengthen new production, however the total issuance figure is slightly lower than the one observed in August’s data. This is according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.

September saw 83 new pools issued, including approximately $393 million of new, unseasoned first participation HECM pools. This constitutes the highest monthly total for new production in 2019. For comparison, HMBS issuers sold 104 pools totaling $588 million in the same month last year.

Still, the reverse mortgage industry continues to face headwinds related to reduced volume, as the HMBS market is predicted to issue under $8 billion in calendar 2019, reduced from $9.6 billion in 2018 and $10.5 billion in 2017.

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At the same time, however, a continually beneficial interest rate environment is diminishing much of the effects of October 2, 2017’s cuts to principal limit factors (PLFs), the cuts themselves being corrective action that the Federal Housing Administration (FHA) took in order to ensure the longevity and financial viability of the HECM program.

There is still optimism to be found in the numbers for the year, according to New View Advisors partner Michael McCully.

“Yes [I still feel optimism], albeit quite modestly,” McCully said in an email to RMD. “New issue volume growth isn’t robust, but at least it’s positive. New originations were up less than 1% month-over-month August to September, though volume is 30% higher in September than it was in January.”

In spite of reduced volume that New View attributes to lower PLFs, production of new, original loan pools reached the highest recorded levels of 2019 for the second month in a row, according to the commentary accompanying New View’s data.

“September’s production of original new loan pools was about $393 million, compared to $390 million in August, $321 million in July, $331 million in June, $325 million in May, $300 million in April, $277 million in March, $274 in February, and $304 million in January,” New View writes. “Last month’s tail pool issuances totaled $217 million, on the low end of the range of recent tail issuance. As we predicted two months ago, the industry is likely seeing the benefit of lower interest rates helping new origination volume.”

Read the full commentary at New View Advisors.

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