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HECM Payoffs Reach New Record with $1 Billion in May

For the first time ever, Home Equity Conversion Mortgage-backed securities saw prepayments of more than $1 billion in a single month, wiping out an overall strong May for HMBS issuance.

HMBS issuers rolled out $768 million in loan pools last month, according to data from New View Advisors, with $543 million of that coming from new issuance, and “tail pools” — or new participation in previously issued HMBS pools — accounting for the remaining $225 million.

Under different circumstances, that might have been a strong growth month for the HMBS marketplace, but record prepayments continue to shrink the overall size of outstanding float: The $1.02 billion in payoffs caused the total balance to contract by a record $72 million, New View said, leaving a total of $55.1 billion in the HMBS market.

“Payoffs figure to continue their climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount,” the New York City-based financial firm noted in its commentary.

Of the $1 billion in total payoffs, $580 million came from loans that had reached the 98% figure and were assigned to the Department of Housing and Urban Development, according to data from RecursionCo, a New York City-based financial analytics firm. That was good for 56.9% of total payoffs last month; by comparison, loans hitting their maximum claim amounts represented just 29.8% of payoffs in September 2013.

“This probably means further shrinkage in HMBS float throughout 2017,” New View wrote.

May marked the ninth consecutive month in which payoffs have exceeded issuance figures, a trend that New View has attributed to the glut of loans from 2009 to 2011 reaching 98% of their Maximum Claim Amounts.

Read New View’s full analysis here.

Written by Alex Spanko