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.

 

HMBS Issuer Rankings 2017Q1 – AAG Back as Number 1

April 17th, 2017

AAG returned as the #1 HMBS Issuer for the first quarter of 2017, issuing $538.6 million of securities for a 23.3% market share, well ahead of Finance of America Reverse’s $388.5 million and 16.8% market share. Reverse Mortgage Funding slipped to third for the quarter with $364.4 million issued and 15.8% market share. Ocwen Loan Servicing and Nationstar round out the top five issuers. Ocwen issued $306.7 million for a 13.3% market share, and Nationstar was fifth with $237.9 million issued for a 10.3% market share. Live Well Financial remained in 6th place for the quarter. The top five issuers accounted for 79.6% of all issuance, down slightly from last quarter’s 80.8%. There were no new HMBS issuers in the first quarter of 2017.

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 $2.308 billion for 2017Q1, on pace with 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.

HMBS March 2017: Honey We Shrunk the Float, Part II

April 13th, 2017

The HMBS market shrank again in March for the second time in the last 4 months, with record prepayment numbers exceeding new issuance and negative amortization. Issuers created 103 pools in March totaling nearly $727 million. HMBS production remained steady as it has for the last several months, with an occasional bump from highly seasoned pools. March issuance divided into 44 original pools and 59 tail pools. No seasoned original pools were issued. Production of original new loan pools was $508 million, down from February’s $512 million.

Original pools are those HMBS pools backed 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. March’s tail issuance was about $219 million, consistent with tail production the past 12 months.

In December 2016, the HMBS market shrank for the first time as prepayments drove total outstanding HMBS to just under $55 billion. Last month, total outstanding HMBS shrank by about $62 million from February, driven by last month’s record payoffs. We estimate that last month’s change in HMBS balance was composed of approximately $177 million in negative amortization (a record), plus the $727 million in new issuance, minus $966 million in payoffs. Payoffs have exceeded new issuance for seven months in a row.

Payoffs figure continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion Co once again crunched the numbers: the payoffs from 98% MCA assignments totaled a record $550 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.

HMBS February 2017: After January Delirium, February Equilibrium

March 13th, 2017

The HMBS market returned to equilibrium in February, with both new issuance and outstanding float matching previous levels. Issuers created 97 pools in February totaling nearly $713 million. HMBS production was very similar to November and December 2016, but down significantly from January’s $868 million, which included large seasoned pools. The February pools divided into 48 original pools and a record 49 tail pools. No seasoned pools were issued. Production of original new loan pools was $513 million, down from January’s $525 million.

Original pools are those HMBS pools backed by the first participation in a previously uncertificated HECM loan. 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. February’s tail issuance was about $200 million, in line with normal tail production in the past 12 months.

In December 2016, the HMBS market shrank for first time as record prepayments drove total outstanding HMBS to just under $55 billion. Last month however, total outstanding HMBS rose by about $45 million from January, driven by steady issuance, and a drop off from the record payoffs of December 2016. We estimate that last month’s change in HMBS balance was composed of approximately $176 million in negative amortization (a record), plus the $713 million in new issuance, minus $843 million in payoffs. Payoffs have exceeded new issuance for six months in a row.

Payoffs figure continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion Co once again crunched the numbers: the 98% MCA assignments accounted for a record 65% of the dollar amount of payoffs last month. This percentage has been rising steadily. According to Recursion, the 98% MCA puts were only 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.

Financial Assessment Works

February 17th, 2017

Financial Assessment is working. FHA’s new policy of requiring financial assessment (“FA”) of the borrower’s ability to pay has cut tax and insurance default by two-thirds and serious defaults almost in half, according to an analysis by New View Advisors.

FHA’s objective for the new Financial Assessment regulations 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.” 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.

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 nearly two years since FA began, so we should be able to measure the effect of this policy by comparing the default rates of loans originated just after and just before the FA rule was implemented.

With this in mind, New View Advisors looked at a data set of over 85,000 HECM loans, comparing loans originated in the immediate post-FA period from July 2015 through December 2016 to loans originated in the 18 month pre-FA period from October 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 18 months, the pre-FA data set shows a T&I default rate of 1.17%, and an overall serious default rate of 1.80%. By contrast, the post-FA data set shows a T&I default rate of only 0.39%, and an overall serious default rate of 1.03%. For the purposes of this analysis, we define serious defaults as T&I defaults plus foreclosures and other “Called Due” status loans.

Based on this result, we should give the Financial Assessment concept high marks for reducing defaults, however this is a 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. 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 the recent month of HMBS issuance shows, subsequent draws and HMBS “tail” issuance are a driving force in the industry’s profits.

Given these trends, estimates based on unit counts of HECM endorsements overstate the negative impact of financial assessment. Measuring by dollars lent, and not just at initial loan funding, is the true metric by which we should measure industry growth.

On a side note, this is New View Advisors’ 100th blog dating back to June 2009, a modest milestone, but a milestone nonetheless.

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

Winter’s Tail: Strong HMBS Issuance Ushers in New Year

February 12th, 2017

HMBS issuers began 2017 with a strong month, creating 121 pools in January totaling nearly $869 million. Production of original new loan pools was $525 million, up from December’s $515 million and much higher than January 2016’s total of $469 million. The pools divided into 57 original pools and a record 64 tail pools. The strong issuance was helped by a few large seasoned tail pools from legacy (i.e. non-originator) issuers.

Original pools are those HMBS pools backed by the first participation in a previously uncertificated HECM loan. 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. January’s tail issuance was about $344 million, the 3rd highest dollar total ever.

In December 2016, the HMBS market shrank for the first time as record prepayments drove total outstanding HMBS to just under $55 billion. Last month however, total outstanding HMBS rose by about $174 million from December, driven by the large tail issuance and a drop off from the record payoffs of December 2016. We estimate that last month’s change in the outstanding HMBS float was composed of approximately $175 million in negative amortization, plus the $869 million in new issuance, minus $870 million in payoffs. Payoffs have exceeded new issuance for five months in a row.

Payoffs figure continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion Co crunched the numbers: the 98% MCA assignments accounted for a record 62.4% of the dollar amount of payoffs last month. This percentage has been rising steadily. According to Recursion, the 98% MCA puts were only 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.

Bob Gross

January 27th, 2017

New View Advisors would like to take a moment to recognize and mourn the loss of Bob Gross, who passed away on December 12th. Everyone knew Bob and everyone liked Bob. There was nothing not to like. Bob was a seasoned mortgage and securities lawyer, a true go-to resource, an early pioneer in the birth of the reverse mortgage capital markets, and a friend to anyone and everyone who spent time with him. In addition to his battle-tested skillset, Bob also showed us all how to transact with dignity, calm, and an ever-present sense of humor and perspective.

Along with his partners and team at then McKee Nelson, and later Bingham McCutchen, Bob worked on every proprietary reverse mortgage securitization underwritten by Lehman Brothers. We take for granted now the securitization machine, but in its early days, every closed transaction was a miracle. Bob was an integral part of that process.

It will be a little harder and a lot less fun attending investor conferences, calling around for answers to complex mortgage problems, or giving out securitization lawyer referrals, knowing Bob won’t be on the list. We will miss him dearly.

Honey, We Shrank the Float: HMBS Supply Drops for First Time

January 14th, 2017

The HMBS market shrank for the first time as record prepayments drove total outstanding HMBS to just under $55 billion. HMBS issuers created 97 pools in December 2016, totaling $715 million. Production of original new loan pools was $515 million, up from November’s $504 million and about the same as December 2015’s totals. The pools divided into 49 original pools and 48 tail pools. There were no seasoned pools issued.

Original pools are those HMBS pools backed by the first participation in a previously uncertificated HECM loan. 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. December’s tail issuance was about $199 million, the 3rd lowest monthly total in 2016.

Total outstanding HMBS fell by about $55 million from November and is now $11 million below October’s month-end tally. We estimate that December’s change in HMBS balance was composed of approximately $173 million in negative amortization, plus the $715 million in new issuance, minus a whopping record $943 million in payoffs. By comparison, December 2015 payoffs totaled only about $653 million. Payoffs have exceeded new issuance for four months in a row. Payoffs figure continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount. Further shrinkage in outstanding HMBS float could continue throughout 2017.

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

HMBS Issuer Rankings Full Year 2016 – RMF Maintains Razor Thin Margin for the Crown

January 4th, 2017

RMF remains the #1 HMBS Issuer for 2016, issuing $2.001 billion of securities for a 21.8% market share, just $9.45 million more than AAG’s $1.991 billion and 21.7% market share. Finance of America Reverse, Ocwen Loan Servicing, and RMS round out the top five issuers. Finance of America Reverse issued $1.475 billion for a 16.1% market share, Ocwen was fourth with $1.087 billion and an 11.8% market share, and RMS was fifth with $868.0 million issued for a 9.5% market share. Live Well Financial slipped a notch to 6th for calendar 2016. The top five issuers accounted for 80.8% of all issuance, up slightly from last quarter’s 80.6%. There were no new HMBS issuers in the fourth quarter of 2016.

Despite the much-reported slowdown in HECM endorsements, HMBS issuance remains robust, aided by growth in tail issuance and highly seasoned pools. Issuance volume totaled $9.187 billion for 2016, just 3% less than 2015’s $9.453 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.

hmbs-2016q4

HREMIC Issuance Full Year 2016: Another Year, Another Record

January 3rd, 2017

HREMIC issuance for 2016 was $9.86 billion, surpassing 2015’s $9.51 billion, a previous record. There were 27 transactions underwritten by five sponsors, Nomura, Bank of America Merrill Lynch, Citicorp, Barclays, and RBC. Nomura remains the #1 issuer, with $5.4 billion, 54% of their life-to-date issuance of $10.1 billion. Bank of America Merrill Lynch was second with $3.2 billion. Life-to-date BAML has issued $17.8 billion of all HREMICs, for a 40% market share. Nomura has issued 23% of all HREMICs, and Barclays 13%.

Approximately 80% of outstanding HMBS securities have been resecuritized into HREMICs, up from 77% at the end of 2016Q3. A stronger bid for the Interest-Only HREMIC classes emerged in 2015, and the seasoned HMBS pools we’ve referenced in past blogs are also contributing to the HREMIC volume uptick. 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.

hremic-2016q4