October HMBS Production Strengthened Again by Low Rates

The production of new Home Equity Conversion Mortgage-backed securities (HMBS) totaled approximately $642 million in October as lower interest rates continue to strengthen new production, with the total issuance figure rising $32 million higher than the one observed in September’s data. This is according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.

October saw 82 new pools issued, including approximately $426 million of new, unseasoned first participation HECM pools. This constitutes the highest monthly total for new production in 2019 for the fourth month in a row. This, however, also highlights the general headwinds facing the reverse mortgage industry at the moment, which will have a hard time reaching HMBS issuance levels from 2018. For comparison, HMBS issuers sold 99 pools totaling $1.018 billion in the same month last year.

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, according to New View.

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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.

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 once again, according to the commentary accompanying New View’s data.

“October’s production of $426 million of original new loan pools surpasses $393 million in September, $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 $216 million, on the low end of the range for recent tail issuance. As predicted, we are likely seeing the benefit of lower interest rates helping new origination volume.”

Read the full commentary at New View Advisors.

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