HMBS December 2017: It Is Better to Give New Issuance than to Receive Payoffs

January 14th, 2018

The HMBS market closed out 2017 with a strong month of new issuance but remains range bound in total size. Total HMBS float has been stuck between $54 billion and $56 billion for nearly two years, though this may change in 2018 as the new Principal Limit Factors (“PLFs”) start to reduce origination volume. In December HMBS float rose by over half a billion dollars, helped by the largest monthly issuance in nearly 8 years. HMBS Prepayments topped $1 billion, the 6th highest monthly payoff ever. Issuers kept HMBS supply levitating with 106 new pools totaling $1.35 billion.

December issuance divided into 53 original pools and 53 tail pools. Two highly seasoned original new loan pools were issued. Production of original new loan pools was a strong $748 million, reflecting the mad rush of origination at the end of FY 2017.

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. December’s tail issuance was strong: about $241 million.

Total outstanding HMBS rose by about $511 million from November. We estimate the change in HMBS balance was composed of over $186 million in negative amortization, plus the $1.35 billion in new issuance, minus $1.02 billion in payoffs. December broke a fifteen month streak in which payoffs exceeded new issuance.

Payoffs remained high in December, still above a 20% annual rate, as more seasoned HECM loans continue to liquidate as they reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo crunched the numbers: the payoffs from 98% MCA puts totaled approximately $590 million last month, down 25% from last month’s record.  Nonetheless, according to Recursion the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013.

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

HREMIC Issuance 2017 Full Year: Volume Tails Off

January 4th, 2018

HREMIC issuance for 2017 was $9.24 billion, 6% behind 2016’s total of $9.86 billion, but still the third highest issuance year after 2016 and 2015. Fourth quarter volume was $1.93 billion, up 3% from 2017’s third quarter issuance of $1.87 billion.

There were 25 transactions underwritten by three sponsors, Nomura, Citigroup, and Bank of America Merrill Lynch. Nomura remains the #1 issuer for the full year with $4.2 billion. Citigroup was second with $3.2 billion, and Bank America Merrill Lynch was third with $1.8 billion. Life-to-date BAML has issued $19.6 billion of all HREMICs for a 36.7% market share, and Nomura has issued $14.4 billion for a 26.9% market share.

HREMIC volume in the second half of 2017 was off 30% from the first two quarters, suggesting investors are more comfortable owning HMBS outright than as structured securities. An increase in HECM prepayments disproportionately affects Interest-Only securities, which may help explain the volume drop.

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.

2017 HMBS Issuer Rankings – A Busy Fourth Quarter

January 3rd, 2018

AAG keeps the crown as the leading HMBS Issuer for 2017, issuing $2.3 billion of securities for a 21.9% market share, $211 million over #2 Reverse Mortgage Funding’s $2.1 billion and 19.9% market share. RMF issued a whopping $918 million in the fourth quarter, which included the issuance of highly seasoned pools, leapfrogging over Finance of America Reverse for the year. FAR wound up in third with $1.8 billion issued and 17.4% market share. Ocwen Loan Servicing and Live Well Financial once again round out the top five issuers. Ocwen issued $1.3 billion for a 12.2% market share, and Live Well was fifth with $945 million issued for a 9% market share. Longbridge Financial jumped two spots to #6 with $606 million issued.

The fourth quarter counted nearly $3.3 billion of HMBS, almost one third of calendar 2017’s entire issuance. December alone saw $1.35 billion of securities issued. The top five issuers accounted for 80.4% of all issuance, about the same as last quarter. Just 8.5% of 2017 HMBS issuance was fixed rate. There remain 16 active HMBS issuers in the industry.

Despite the month-to-month fluctuations in HECM endorsements, HMBS issuance remains robust, aided by growth in tail issuance and, in the fourth quarter, some issuance of highly seasoned pools. While endorsement count is an ok proxy for new origination volume, it does not provide a comprehensive picture of overall industry growth or health. HMBS issuance volume totaled $10.5 billion for 2017, just $160 million shy of 2010’s record year of $10.7 billion.

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

 

HMBS November 2017: Don’t Look Down

December 11th, 2017

Last month the HMBS market impersonated the Coyote, holding an anvil of loan payoffs in mid-air but not falling. That will change soon when the full effect of new PLFs inevitably shrinks the outstanding HMBS float, which fell slightly in November despite the largest issuance in 15 months. HMBS prepayments topped $1.2 billion, the highest monthly payoff ever. 14 issuers kept HMBS supply levitating with 114 new pools totaling $989 million. Like the Acme Company, some of these issuers are introducing new products to address the shortcomings of the old.

November issuance divided into 53 original pools and 61 tail pools. No highly seasoned original new loan pools were issued. Production of original new loan pools was a whopping $755 million, reflecting the rush to close loans under the old PLFs.

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. Last month’s tail issuance was strong: about $233 million.

Last month, total outstanding HMBS fell by almost $94 million from October. We estimate the change in HMBS balance was composed of $184.6 million in negative amortization, plus the $989 million in new issuance, minus $1.267 billion in payoffs. Payoffs have exceeded new issuance for fifteen months in a row.

Payoff figures were very high in November, smashing records with a 24% annual rate as more seasoned HECM loans liquidated or reached 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo crunched the numbers: the payoffs from 98% MCA puts totaled approximately $791 million last month, by far the highest total ever. According to Recursion, the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013.

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

October 2017: HMBS Market Sees a Ghost

November 12th, 2017

In a month where HECM lenders were haunted by the specter of lower Principal Limit Factors, the HMBS market froze with fright – again – at $55 billion in September. HMBS Prepayments topped $1 billion, the third highest monthly payoff ever. However, a record 15 issuers whistled past the graveyard with 107 new pools totaling over $913 million.

October issuance divided into 48 original pools and 59 tail pools. Two highly seasoned original new loan pools were issued. Production of original new loan pools was a healthy $615 million, a typical total for this year.

November issuance promises to be very interesting indeed, as pools are already being issued backed by some of the new lower PLF/lower interest rate loans.

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. October’s tail issuance was very strong: about $264 million, the third highest ever.

Last month, total outstanding HMBS grew by almost $40 million from September. We estimate that last month’s change in HMBS balance was composed of over $184.2 million in negative amortization, plus the $913 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 fourteen months in a row.

Payoffs figure are still high, running above a 20% annual rate as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount (“MCA”). Our friends at RecursionCo crunched the numbers: the payoffs from 98% MCA puts again totaled approximately $614 million last month, the third highest total ever. According to Recursion, the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013.

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

Financial Assessment Is Working (Part IV)

November 1st, 2017

Financial Assessment is still working. FHA’s new policy of requiring a 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 in previous quarters.

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 125,000 HECM loans, comparing loans originated in the immediate post-FA period from July 2015 through September 2017 to loans originated in the 27 month pre-FA period from January 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 27 months, the pre-FA data set shows a T&I default rate of 2.3%, and an overall serious default rate of 3.1%. By contrast, the post-FA data set shows a T&I default rate of about 0.6%, and an overall serious default rate of 1.2%. 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 12% higher for loans currently aged 27 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 September 2017: Slow Climb Up the Down Escalator

October 15th, 2017

The HMBS market remained stuck – again – at $55 billion in September. HMBS Prepayments topped $1 billion, but was balanced by 114 new pools from 14 different issuers totaling over $879 million.

September issuance divided into 49 original pools and 65 tail pools. No seasoned original new loan pools were issued. Production of original new loan pools was a healthy $627 million, a typical total for this year.

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. September’s tail issuance was strong: about $252 million.

Last month, total outstanding HMBS grew by only $12 million from August. We estimate that last month’s change in HMBS balance was composed of over $184 million in negative amortization, plus the $879 million in new issuance, minus $1.05 billion in payoffs. Last month’s payoffs were the third highest ever; payoffs have exceeded new issuance for thirteen 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 show that payoffs from 98% MCA assignments totaled approximately $614 million last month, the second highest total ever. According to Recursion, the 98% MCA puts were only $92 million, or 29.8% of payoffs in September 2013.

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

HREMIC Issuance 2017Q3: 100.3% Market Share

October 5th, 2017

HREMIC issuance for the first nine months of 2017 was $7.31 billion, about 5% behind 2016’s first nine months’ issuance total of $7.68 billion. Third quarter volume was $1.87 billion, off 26% from 2017’s second quarter issuance of $2.53 billion.

There were 19 transactions underwritten by three sponsors, Nomura, Citigroup, and Bank of America Merrill Lynch. Nomura remains the #1 issuer with $3.6 billion. Citigroup leapfrogged ahead to second with $2.0 billion, and Bank America Merrill Lynch was third with $1.6 billion. Life-to-date BAML has issued $19.4 billion of all HREMICs for a 37.6% market share, and Nomura has issued $13.8 billion for a 26.8% market share.

For the nine months ended September 30, 2017, more HREMICs ($7.31 billion) than HMBS ($7.29 billion) were issued, suggesting the vast majority of HMBS now find their way into HREMIC securitization. The stronger and broader bid for the Interest-Only HREMIC class that emerged in 2016 has made the HREMIC structure the most profitable option for broker dealers.

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 2017Q3 – Active Issuer Count Hits New High Water Mark

October 4th, 2017

AAG remains the leading HMBS Issuer for the first nine months of 2017, issuing $1.718 billion of securities for a 23.6% market share, $407 million over #2 Finance America Reverse’s $1.311 billion and 18.0% market share. AAG’s market share dropped marginally over 2017Q2, and FAR narrowed the gap by 1.3%. Reverse Mortgage Funding stayed in third for the quarter with $1.181 billion issued and 16.2% market share. Ocwen Loan Servicing and Live Well Financial round out the top five issuers again. Ocwen issued $981.7 million for a 13.5% market share, and Live Well was fifth with $650.7 million issued for an 8.9% market share. There was no change in rankings from the second quarter, though Longbridge Financial entered the fray at #8 with $320.5 million issued. The top five issuers accounted for 80.1% of all issuance, down from last quarter’s 81.6%. There are now 16 active HMBS issuers in the industry, a new record.

Despite the much-reported slowdown in HECM endorsements, HMBS issuance remains robust, aided by growth in tail issuance and without highly seasoned pools. At this point, endorsement count has become a meaningless metric for gauging industry growth and health. Issuance volume totaled $7.292 billion for the first nine months of 2017, remaining on pace to surpass 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.

$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.