$55 Billion Speed Limit Slows HMBS Market Growth

September 17th, 2017

The HMBS market remained stuck at $55 billion in August. HMBS Prepayments topped $1 billion, but was balanced by 92 new pools totaling over $913 million. In its second month of issuance, Longbridge Financial led all issuers with nine pools totaling $215 million.

August issuance divided into 52 original pools and 40 tail pools. No seasoned original new loan pools were issued. Production of original new loan pools was a healthy $736 million, the highest total since last August, and up from $622 million last month.

Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participations. In other words, tail pools are created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance. July’s tail issuance was about $177 million.

Last month, total outstanding HMBS grew by $43 million from July. We estimate that last month’s change in HMBS balance was composed of over $188 million in negative amortization (a record), plus the $914 million in new issuance, minus $1.06 billion in payoffs. Last month’s payoffs were the third highest ever; payoffs have exceeded new issuance for twelve months in a row.

Payoff figures are still high as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo once again crunched the numbers: the payoffs from 98% MCA puts totaled approximately $590 million last month. According to Recursion, the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013. This probably means further shrinkage in HMBS float throughout 2017.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

Financial Assessment Is Working (Part III)

August 16th, 2017

Financial Assessment is still working. FHA’s new policy of requiring the financial assessment (“FA”) of the borrower’s ability to pay has cut tax and insurance default by nearly three quarters and serious defaults by almost two-thirds. These results continue to validate the encouraging data we shared 3 months and 6 months ago.

FHA’s objective for the new Financial Assessment regulations was to reduce the persistent defaults, especially Tax and Insurance defaults, plaguing the HECM program. As FHA put it, “… an increasing number of tax and hazard insurance defaults by mortgagors led FHA to establish … a requirement for a Financial Assessment of a potential mortgagor’s financial capacity and willingness to comply with mortgage provisions.” Financial Assessment requirements became effective for HECMs with case numbers issued on or after April 27, 2015. Since then, HECM lenders must make a financial assessment of the borrower’s ability to meet their obligations, including property taxes and home insurance. Tax and Insurance (T&I) and other defaults can lead to foreclosure and result in significant losses to FHA, HMBS issuers, and other HECM investors. Defaults rose steadily during the financial crisis and have remained a thorn in the side of the program.

It’s been over two years since Financial Assessment began, so we can measure the effect of this policy by comparing the default rates of loans originated before and after the FA rule was implemented.

With this in mind, New View Advisors looked at a data set of just over 115,000 HECM loans, comparing loans originated in the immediate post-FA period from July 2015 through June 2017 to loans originated in the 24 month pre-FA period from April 2013 through March 2015. After July 2015, there were few (if any) loans originated under the pre-FA guidelines. As the guidelines took effect in April 2015, the second quarter of 2015 includes a mix of FA and pre-FA loans.

The data show a very strong reduction in Tax and Insurance Defaults in the post-FA period. After 24 months, the pre-FA data set shows a T&I default rate of 2.1%, and an overall serious default rate of 2.8%. By contrast, the post-FA data set shows a T&I default rate of only 0.6%, and an overall serious default rate of 1.0%. For the purpose of this analysis, we define serious defaults as T&I defaults plus foreclosures and other “Called Due” status loans.

Given this result, the Financial Assessment concept gets high marks for reducing defaults. The table below shows the improving portfolio trendline from pre-FA to post-FA at 18, 21, and 24 months. We will continue to monitor progress as the post-FA portfolio ages.

Average loan size and subsequent draws are also higher for the post-FA market. Average loan balances are about 11% higher for loans currently aged 24 months or less compared to the comparable HECM loan population as of March 2015. This is not surprising since homeowners of more expensive home generally have better credit and ability to pay. Also, FHA now limits the amount that can be lent in the first 12 months. As recent months of HMBS issuance show, subsequent draws and HMBS “tail” issuance are a driving force in the industry’s profits. Dollars lent, and not just at initial loan funding, is the true metric by which the industry should measure industry growth.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

 

HMBS Shrinkage Takes Summer Vacation; Issuer Beach Getting Crowded

August 14th, 2017

The HMBS market grew in July, featuring a new issuer and lower prepayments. HMBS prepayments fell below $1 billion as thirteen issuers created 109 pools in July totaling over $848 million. Longbridge Financial made its HMBS issuance debut with two pools totaling $54 million.

July issuance divided into 46 original pools and 63 tail pools. No seasoned original new loan pools were issued. Production of original new loan pools was a healthy $622 million, up from $571 million in the prior month.

Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participations. In other words, tail pools are created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance. July’s tail issuance was about $225 million, the highest total since January.

Last month, total outstanding HMBS grew by $63 million from June. We estimate that July’s change in HMBS balance was composed of over $186 million in negative amortization (a record), plus the $848 million in new issuance, minus $971 million in payoffs. July’s payoffs were the third highest ever; payoffs have exceeded new issuance for eleven months in a row.

Payoff figures are still high as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursonCo once again crunched the numbers: the payoffs from 98% MCA puts totaled approximately $576 million last month. This amount is down from last month but the overall trend has been a steady rise. According to Recursion, the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013. This probably means further shrinkage in HMBS float throughout 2017.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

HREMIC Issuance First Half 2017: A Familiar Pattern

July 18th, 2017

HREMIC issuance for the first half of 2017 was $5.44 billion, eclipsing 2016’s first half issuance total of $5.43 billion, and on pace to set a fourth consecutive annual record. Second quarter volume was $2.53 billion, off 13% from the near record quarterly issuance of $2.91 billion set in 2017Q1.

There were 14 transactions underwritten by three sponsors, Nomura, Bank of America Merrill Lynch, and Citigroup. Nomura remains the #1 issuer, with $3.2 billion, Bank of America Merrill Lynch was second with $1.4 billion, and Citigroup was third with $853 million. Life-to-date BAML has issued $19.2 billion of all HREMICs for a 39% market share, and Nomura has issued $13.3 billion for a 27% market share.

Approximately 90% of outstanding HMBS securities have been resecuritized into HREMICs, up from 85% at the end of 2017Q1. At this point, substantially all HMBS are finding their way into HREMIC securitization. A stronger and broader bid for the Interest-Only HREMIC classes emerged last year, and as a result the HREMIC structure, which allows issuers to create bond classes such as these “IO” securities, has become 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 HECMs, which are FHA-insured reverse mortgages. 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.

New View Advisors compiled these rankings from publicly available Ginnie Mae data.

HMBS Blooms but June Swoon Lowers Boom: Payoffs Zoom as Shrinkage Looms

July 13th, 2017

The HMBS market shrank again in June, with another huge prepayment wave outweighing a strong month of new issuance. Nearly 2% of outstanding HMBS supply paid off as HMBS prepayments exceeded $1 billion for the second month in a row. Issuers created 101 pools in June totaling over $779 million. June issuance divided into 50 original pools and 51 tail pools. No seasoned original new loan pools were issued. Production of original new loan pools was a healthy $571 million, up from $543 million in the prior month.

Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participations. In other words, tail pools are created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance. June’s tail issuance was about $208 million, also consistent with recent production.

Last month, total outstanding HMBS shrank by a record $111 million from May. We estimate that last month’s change in HMBS balance was composed of over $181 million in negative amortization (a record), plus the $779 million in new issuance, minus the record $1.07 billion in payoffs. Payoffs have exceeded new issuance for ten months in a row.

Payoffs continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo once again crunched the numbers: payoffs from 98% MCA assignments totaled a record of approximately $640 million last month. This amount has been rising steadily. According to Recursion, the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013. This probably means further shrinkage in HMBS float throughout 2017.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

HMBS Issuer Rankings 2017 First Half – AAG Widens Its Lead

July 6th, 2017

AAG remains the leading HMBS Issuer for the first half of 2017, issuing $1.132 billion of securities for a 24.4% market share, increasing by 0.42% from the first quarter its margin over #2 Finance America Reverse’s $810.7 million and 17.4% market share. Reverse Mortgage Funding remained in third for the half with $758.7 million issued and 16.3% market share. Ocwen Loan Servicing and Live Well Financial round out the top five issuers. Ocwen issued $664.4 million for a 14.3% market share, and Live Well was fifth with $428.6 million issued for a 9.2% market share. Nationstar dropped to 6th place for the half. The top five issuers accounted for 81.6% of all issuance, up from last quarter’s 79.6%. There were 15 HMBS issuers in the first half of 2017, tying the high water mark for number of issuers set in 2016.

Despite the much-reported slowdown in HECM endorsements, HMBS issuance remains robust, aided by growth in tail issuance and without highly seasoned pools. Issuance volume totaled $4.649 billion for the first half of 2017, on pace to pass 2016’s full year production of $9.187 billion. 2010 was the record year for HMBS with $10.7 billion of securities issued.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

May Prepayments Shrink HMBS Again – Prepayments May Again Shrink HMBS

June 15th, 2017

The HMBS market shrank again in May, with a huge prepayment wave outweighing an otherwise strong month of new issuance. Nearly 2% of outstanding HMBS supply paid off as HMBS prepayments exceeded $1 billion for the first time. Issuers created 111 pools in May totaling over $768 million. April issuance divided into 48 original pools and 63 tail pools. No seasoned original new loan pools were issued. Production of original new loan pools was a healthy $543 million, consistent with recent production.

Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participations. In other words, tail pools are created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance. May’s tail issuance was about $225 million, also consistent with recent production.

Last month, total outstanding HMBS shrank by a record $72 million from April to approximately $55.1 billion. We estimate last month’s change in HMBS balance was composed of approximately $181 million in negative amortization (a record), plus the $768 million in new issuance, minus the record $1.02 billion in payoffs. Payoffs have now exceeded new issuance for nine months in a row.

Payoffs figure to continue their climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo once again crunched the numbers: the payoffs from 98% MCA assignments totaled a record $580 million last month, 56.9% of payoffs. This amount has been rising steadily. According to Recursion, the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013. This probably means further shrinkage in HMBS float throughout 2017.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

Financial Assessment Looks Better and Better

May 24th, 2017

Financial Assessment is still working, only more so. FHA’s new policy of requiring financial assessment (“FA”) of the borrower’s ability to pay has cut tax and insurance default by nearly three quarters and serious defaults by almost two-thirds. These results are even better than the encouraging data we shared this past February.

FHA’s objective for the new FA regulation was to reduce the persistent defaults, especially Tax and Insurance (“T&I”) defaults, plaguing the HECM program. As FHA put it, “… an increasing number of tax and hazard insurance defaults by mortgagors led FHA to establish … a requirement for a Financial Assessment of a potential mortgagor’s financial capacity and willingness to comply with mortgage provisions.”

T&I and other defaults can lead to foreclosure and result in significant losses to the FHA’s insurance fund, issuers of HMBS securities, and other HECM investors. Defaults rose steadily during the financial crisis and have remained a thorn in the side of the program.

Financial Assessment requirements became effective for HECMs with case numbers issued on or after April 27, 2015. Since then, HECM lenders must make a financial assessment of the borrower’s ability to meet their obligations, including property taxes and home insurance. Because it’s been more than two years since Financial Assessment began, we can measure the effect of this policy by comparing the default rates of loans originated before and after the FA rule was implemented.

With this in mind, New View Advisors looked at a data set of just under 100,000 HECM loans, comparing loans originated in the immediate post-FA period from July 2015 through March 2017 to loans originated in the 21 month pre-FA period from July 2013 through March 2015.   After July 2015, there were few (if any) loans originated under the pre-FA guidelines. As the guidelines took effect in April 2015, the second quarter of 2015 includes a mix of FA and pre-FA loans.

The data show a very strong reduction in T&I Defaults in the post-FA period.   After 21 months, the pre-FA data set shows a T&I default rate of 1.9%, and an overall serious default rate of 2.5%. By contrast, the post-FA data set shows a T&I default rate of only 0.5%, and an overall serious default rate of 0.9%. For the purposes of this analysis, we define serious defaults as T&I defaults plus foreclosures and other “Called Due” status loans.

Given this result, we once again give the Financial Assessment concept high marks for reducing defaults. However, this is another mid-term grade that needs to be tested further as the post-FA portfolio ages.

Average loan size and subsequent draws are also higher for the post-FA market. Average loan balances are about 10% higher for loans currently aged 21 months or less compared to the comparable HECM loan population as of March 2015. This is not surprising since homeowners of more expensive home generally have better credit and ability to pay. Also, FHA now limits the amount that can be lent in the first 12 months. As recent months of HMBS issuance show, subsequent draws and HMBS “tail” issuance are a driving force in the industry’s profits. Dollars lent, and not just at initial loan funding, is the true metric by which the industry should measure industry growth.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

HMBS April 2017: Original Supply Blooms in Spring

May 10th, 2017

The HMBS market remained in supply equilibrium again in April, with high prepayment numbers balanced out by a strong month of new issuance. Issuers created 104 pools in April totaling over $794 million. April issuance divided into 49 original pools and 55 tail pools. No seasoned original new loan pools were issued. Production of original new loan pools was a healthy $584 million, up from March’s $508 million.

Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participations. In other words, tail pools are created from the Uncertificated Portions of HECMs that have already had their original HMBS issuance. April’s tail issuance was about $210 million, consistent with tail production the past 12 months.

Last month, total outstanding HMBS just avoided its second monthly shrinkage in a row, growing by a scant $18 million from March. We estimate last month’s change in HMBS balance was composed of approximately $180 million in negative amortization (a record), plus the $794 million in new issuance, minus $957 million in payoffs. Payoffs have exceeded new issuance for eight months in a row.

Payoffs continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion once again crunched the numbers: payoffs from 98% MCA assignments totaled a record $565 million last month. This amount has been rising steadily. According to Recursion, the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013. This could mean further shrinkage in HMBS float throughout 2017.

New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.

HREMIC Issuance First Quarter 2017: Record Pace Continues

April 18th, 2017

HREMIC issuance for 2017Q1 was $2.91 billion, surpassing 2016’s first quarter issuance total of $2.84 billion, and on pace to set a third consecutive annual record. First quarter volume was just $89 million shy of the record quarterly issuance of $3.0 billion set in 2015Q4.

There were 8 transactions underwritten by three sponsors, Nomura, Bank of America Merrill Lynch, and Citigroup. Nomura remains the #1 issuer, with $1.7 billion, Bank of America Merrill Lynch was second with $756 million, and Citigroup was third with $453 million. Life-to-date BAML has issued $18.5 billion of all HREMICs for a 39% market share, and Nomura has issued $11.9 billion for a 25% market share.

Approximately 85% of outstanding HMBS securities have been resecuritized into HREMICs, up from 80% at the end of 2016. A stronger and broader bid for the Interest-Only HREMIC classes emerged, and the seasoned HMBS pools we’ve referenced in past blogs are also contributing to increased HREMIC volume. 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 HECMs, which are FHA-insured reverse mortgages. 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.

New View Advisors compiled these rankings from publicly available Ginnie Mae data.