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.

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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.

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HMBS November 2016: Give Thanks for Tail Issuance

December 16th, 2016

HMBS issuers created 108 pools in November, down from October due to the lack of seasoned pool issuance. Production of original new loan pools was $504 million, up from October’s $487 million and generally in line with previous months this year. Issuance totaled approximately $718 million in November, the 4th lowest monthly dollar volume this year, down from October’s total of $832 million. The pools divided into 53 original pools and 55 tail pools.

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. October’s tail issuance was about $214 million, the third highest monthly total this year.

Total outstanding HMBS ticked up to just over $55 billion, an increase of only $44 million from October. We estimate that November HMBS was composed of approximately $171 million in negative amortization, plus the $718 million in new issuance, minus about $845 million in payoffs. Payoffs have exceeded new issuance in 5 of the last 6 months. Payoffs figure continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount.

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

HMBS October 2016: No October Surprise

November 17th, 2016

HMBS issuers created 100 pools in October, keeping pace with September and again aided by seasoned pool issuance. Production of original new loan pools fell to $487 million, down sharply from September’s $624 million but in line with the $467 million issued in August. Issuance totaled approximately $832 million in October, the fourth highest monthly dollar volume this year, down just slightly from the September’s $836 million tally. The pool tally divided into 47 original pools and 53 tail pools. October’s HMBS issuance included two highly seasoned original pools totaling $136 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. October’s tail issuance was about $209 million, typical of this year’s production.

Total outstanding HMBS ticked up to just under $55 billion, up about $111 million from September. We estimate that October HMBS was composed of approximately $171 million in negative amortization, plus the $832 million in new issuance, minus a record $891 million in payoffs. Payoffs have exceeded new issuance in 4 of the last 5 months. Payoffs continue to climb as more seasoned HECM loans liquidate or reach 98% of their Maximum Claim Amount.

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

HMBS Issuer Rankings 2016Q3 – RMF Squeaks Past AAG to Capture the Crown

October 21st, 2016

RMF has overtaken AAG as #1 HMBS issuer for the first nine months of 2016, issuing $1.519 billion of securities for a 22% market share, just $12 million more than AAG’s $1.507 billion and 21.8% market share. AAG had been the leading HMBS issuer since 2015Q2. RMF first issued HMBS in 2014Q1. Finance of America Reverse, Liberty Home Equity, now issuing HMBS as Ocwen Loan Servicing, and Live Well Financial round out the top five issuers. The Money House is the newest HMBS entrant, bringing the total number of issuers to a record 15. Finance of America Reverse issued $1.086 billion for a 15.7% market share, Liberty was fourth with $815.8 million and an 11.8% market share, and Live Well was fifth with $648.4 million issued for a 9.4% market share. The top five issuers accounted for 80.6% of all issuance, down slightly from last quarter’s 81.8%.

Despite the much-reported slowdown in HECM endorsements, HMBS issuance remains robust, aided by growth in tail issuance and highly seasoned pools. As earlier reported, September new original HMBS issuance was up 34% over August. Continued strength in home price appreciation and capital markets execution also help the industry maintain volume in the face of increased mortgage lending scrutiny and regulatory oversight, and ongoing HECM program changes such as financial assessment. Issuance volume totaled $6.922 billion for the first nine months of 2016, $179 million more than 2015Q3’s $6.743 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.

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