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Low Interest Rates Continue Fueling HMBS Production in November

The production of new Home Equity Conversion Mortgage-backed securities (HMBS) totaled approximately $732 million in November as lower interest rates continue to strengthen new production, with the total issuance figure rising $90 million higher than the one observed in October’s data. This is according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.

November saw 89 new pools issued, including approximately $506 million of new, unseasoned first participation HECM pools. This constitutes the highest monthly total for new production in 2019 for the fifth 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.

“With this month’s issuance, the HMBS market is on track to total about $8 billion for calendar year 2019,” said New View in the commentary accompanying the new data. “HMBS issuance totaled $9.6 billion in 2018, and $10.5 billion in 2017.”

This projection has been revised slightly upward when compared with the same projection last month, but only very modestly so.

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.

“November’s production of original new loan pools was about $506 million, compared to $426 million in October, $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 $225 million, within the range of recent tail issuance. As predicted last quarter, we are seeing the benefit of lower interest rates helping new origination volume.”

Read the full commentary at New View Advisors.