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Growing HREMIC Issuance Tops $5.4 Billion in 2016

HREMIC issuance for the first six months of 2016 have reached $5.4 billion, eclipsing the previous high water mark of $4.3 billion, according to the latest market commentary from New View Advisors.

In total, there were 14 transactions underwritten by four sponsors, including Nomura, Bank of America Merrill Lynch, Barclays and Royal Bank of Canada.

Nomura remains the lead issuer with $3.3 billion, which New View Advisors notes nearly equals their 2015 full-year issuance of $3.4 billion.

Bank of America Merrill Lynch, which has issued 41% of all HREMICs life-to-date, was second in the rankings with $1.8 billion worth of issuance.

Life-to-date, Nomura has accounted for 20% of all HREMICs, while Barclays has comprised 15%. Meanwhile, this was the first HREMIC transaction for Royal Bank of Canada, which totaled $97 million.

Approximately 73% of outstanding HECM mortgage-backed securities (HMBS) have been resecuritized into HREMICs, up from 64% at the end of 2015.

“A stronger bid for Interest-Only HREMIC classes emerged last year, and the seasoned HMBS pools we’ve referenced in past blogs are also contributing to the HREMIC volume uptick,” New View Advisors writes in its commentary. “The HREMIC structure, which allows issuers to create bond classes such as these ‘IO’ securities, is increasingly the most profitable option.”

HREMIC collateral consists of HMBS, which are Ginnie Mae guaranteed pass-through securities. HMBS are backed by pools of participations of Home Equity Conversion Mortgages insured by the Federal Housing Administration.

“This double layer of government guarantee, combined with the relatively high coupon and favorable prepayment patterns of the underlying loans, results in very favorable execution, even when compared to other Ginnie Mae ‘forward mortgage’ securities,” writes New View Advisors.

Total HREMIC issuance during the first half of the year now puts the industry on pace to set its consecutive annual issuance record, according to New View Advisors.

Read the New View Advisors commentary.

Written by Jason Oliva