Archive for the ‘HREMIC’ Category

HREMIC 2014 First 9 Months – Where Have All the Sponsors Gone?

Wednesday, October 1st, 2014

HREMIC issuance for the first 9 months of 2014 was $3.75 billion, with 19 transactions underwritten by 4 different sponsors.  Bank of America Merrill Lynch remains the market leader with a 44% market share, issuing a little over $1.6 billion of HREMICs, $630.3 million of which was in the third quarter.  RBS was second with 4 issuances totaling $932.6 million, and Nomura was third with 4 transactions for $693.3 million.  Nomura issued $557.9 million of HREMICs in the third quarter; Stifel issued none.

Issuance remains on pace with 2013, but the bigger story is fewer sponsors. BAML and Nomura were responsible for 86% of third quarter activity, with RBS issuing just one HREMIC for $190.8 million.  Cantor Fitzgerald last issued HREMICs in 2011, Deutsche Bank in 2012, and Barclays in 2013.  With Stifel’s likely departure from reverse mortgages last month, and Knight Capital’s exit last year, the industry is down to just three HREMIC sponsors, BAML, Nomura, and RBS.

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 Prepayment Data – August 2014

Monday, September 22nd, 2014

The August 2014 reporting period data for HREMIC prepayment speeds can be found here.  The securities are listed in chronological order, by class, and prepayment speeds use the Dollar Amount Method, defined previously.

HREMIC collateral consists of HMBS, which are Ginnie Mae guaranteed pass-through securities backed by pools of participations of HECMs, which are FHA-insured reverse mortgages.

New View Advisors compiled this data using publicly available Ginnie Mae sources.

Customized reports are available by subscription.

HREMIC Prepayment Data – June 2014

Wednesday, June 25th, 2014

The June 2014 reporting period data for HREMIC prepayment speeds can be found here.  The securities are listed in chronological order, by class, and prepayment speeds use the Dollar Amount Method, defined previously.  Customized reports are available by subscription.

Life-to-date there have been 121 HREMICs issued by 13 different underwriters for $22.1 billion.  Nearly 46% of all HMBS outstanding are collateral for these HREMIC securities.

New View Advisors compiled this data using publicly available Ginnie Mae sources.

New View Advisors Introduces HREMIC Prepayment Data

Wednesday, June 4th, 2014

Starting with the May 2014 reporting period, New View Advisors is introducing monthly distribution of prepayment data for HREMIC securities. The securities are listed in chronological order, by class, and prepayment speeds use the Dollar Amount Method.

The Dollar Amount Method measures prepayment rates by the dollar amount repaid rather than the number of loans or participations that pay off in a given period.  Each HREMIC security corresponds to a group of one or more HMBS pools, or fractions thereof.  The prepayment speed of each HREMIC security is equal to the weighted average of the prepayment speeds of these underlying HMBS, weighted by the unpaid balance of each HMBS pool.

Through May 2014, more than $21.5 billion of HREMICs have been issued. The report can be found here.

In addition to Series, Group, and Class, other data fields include Original Principal Balance, Current Principal Balance, Security Factor, 1, 3, 6, and 12-month Constant Prepayment Rates, Current Interest Rate, Principal Type, Bond Class Interest Type, CUSIP, Final Distribution Date, Underlying Collateral Type, and Underlying Collateral WAPA (Weighted Average Participation Age).

Customized reports are available by subscription.

HREMIC collateral consists of HMBS, which are Ginnie Mae guaranteed pass-through securities backed by pools of participations of HECMs, which are FHA-insured reverse mortgages.

New View Advisors compiled this data using publicly available Ginnie Mae sources.

 

HREMIC 2014Q1 Issuance

Friday, April 11th, 2014

HREMIC issuance for the first quarter of 2014 was off 41% from the first quarter of 2013, with just 6 transactions totaling $957 million.   Only 1 HREMIC was issued in March. In the first quarter of 2013, 8 transactions totaling $1.66 billion were issued.

Bank of America Merrill Lynch continues its dominance in the space with a 56% market share, issuing $538.4 million of HREMICs.  Stifel was second with 2 issuances totaling $300.8 million, and RBS had one transaction for $118.2 million.

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 2013: RMS Leads the Pack; Tails Wag the Dog

Monday, January 13th, 2014

HMBS issuance increased for the first time in three years, tracking the slightly higher originations of 2013 and an increase in “Tail” securitizations. HMBS pools totaling nearly $9.6 billion were issued in 2013, up from $8.5 billion last year but 10% below 2010’s record $10.7 billion. However, the 1,023 issues shattered the previous record of 628 set last year. HMBS issuers sold nearly 400 “tail” pools in 2013. These tails are participations in previously securitized HECMs, and are created by excess interest and “Additional Amounts,” such as line of credit draws and Mortgage Insurance Premiums (“MIP”).

For a reverse mortgage industry beset by financial and political pressures, the annuity-like profits from tail issuance are a stabilizing and beneficial feature during these dog days. Tail issuance can be profitable because the HMBS issuer effectively lends the Additional Amounts at par, and can sell them in the form of HMBS Tails, usually at a premium. The excess interest portion is even better: its accrual creates an HMBS Tail without any additional cash outlay. The HMBS issuer effectively monetizes excess interest on their non-defaulted HECMs every time they issue a tail pool. A single pool can throw off profits to the issuer over a period of several years, although the premium will tend to decline over time as the underlying HECM loans approach maturity.

For 2013, RMS was once again the top HMBS issuer, issuing 226 pools totaling nearly $2.9 billion. RMS was followed by Urban Financial, Live Well Financial, Generation Mortgage and AAG, issuers of approximately $2.4 billion, $1.1 billion, $0.9 billion and $0.7 billion, respectively. AAG, Liberty, and Plaza Mortgage all joined the ranks of HMBS issuers in 2013. Overall, 12 firms issued HMBS in 2013, although a few of these are legacy issuers that do not currently produce or purchase new HECM production.

Of the $9.6 billion in 2013 issuance, $4.5 billion was fixed rate, representing a 47% market share, and the remaining $5.1 billion was adjustable rate. Fixed Rate HMBS issuance dropped from a 65% share last year, reflecting FHA’s changes to the HECM program.

Many of these pools will find their way into HREMIC securitizations; over 370 HMBS pools issued in 2013 have already been securitized (some partially) into HREMICs. HREMIC issuance, as we noted in our previous blog, fell off sharply in the fourth quarter of 2013, but HMBS issuance did not. In fact, HMBS issuance was distributed very evenly throughout the year.

The HREMIC market share of HMBS depends on the relative value of the HREMIC bonds, or classes, that are created from the cash flow of the underlying HMBS. Some investors are content to hold the HMBS itself, and earn premium interest over time. However, dealers often find it profitable to issue an HREMIC, in which HMBS serves as collateral for HREMIC bonds.

The HREMIC structure splits up the cash flow from an HMBS, or several HMBS, into two or more classes. Often this structure takes the form of a pass-through and an interest-only or “IO” class. The pass-through class typically has a par amount equal to the par amount of the underlying HMBS, but pays a lower interest rate. The IO is entitled to the excess interest, and is sold to another investor, often a hedge fund that is willing to bet on long duration. Basically, if the sum of the Pass-through price (typically at or near par) and the IO price (typically expressed as a multiple of the excess interest) exceeds the price of the underlying HMBS, HREMIC issuance may be the most profitable strategy.

In the fourth quarter of 2013, however, the bid for HMBS remained strong but the HREMIC bond bids faded, especially for the IOs. This is likely a short-lived market condition, and we do not foresee any long-lasting dislocation of the HREMIC market. In fact, HREMIC market share may even increase, to extent that new product changes add duration and thus relative value to IO classes.

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

HREMIC Issuance – 2013 Full Year

Monday, January 6th, 2014

HREMIC issuance for all of 2013 was off 18% from 2012, with 26 transactions totaling $4.95 billion. In 2012, 31 transactions totaling just over $6 billion were issued. HREMIC issuance fell sharply in the fourth quarter, with only 3 HREMICs totaling $313 million. No HREMICs were issued in December 2013, marking the first month since October 2011 without a single new HREMIC.

Bank of America Merrill Lynch captured the issuance crown again in 2013 with 10 issuances totaling $2.4 billion. Knight Capital was second with 4 issuances totaling $668 million, and Stifel Nicolaus was third with $617 million. BAML is the #1 all-time issuer with 43 HREMICs for $9.8 billion. Among active issuers, Barclays is #2 with 23 HREMICs for $3.9 billion, and RBS is #3 with 7 HREMICs for $1.0 billion since the inception of the program.

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. In other words, the HECM loans are the collateral for the HMBS, which in turn serve as the collateral for the HREMIC. 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.

HREMICs 2013-First Quarter Keeps Pace

Thursday, March 28th, 2013

First quarter 2013 HREMIC issuance matched last year’s record pace, with 8 HREMICs totaling $1.6 billion, according to Ginnie Mae data. Last year, 31 HREMICs came to market, totaling just over $6 billion. BofA Merrill Lynch edged out Knight Capital for the top underwriter/sponsor in the first quarter of 2013, leading 3 offerings totaling just over $660 million. Knight followed close behind with 3 issues totaling $570 million. BAML has captured the top spot in all four of the annual rankings in 2009 through 2012. In fact, BAML has sponsored nearly half of all of the HREMIC volume ever issued.

Since the first HREMIC was issued in 2009, 91 transactions totaling over $16.4 billion have been issued. Despite the decline in reverse mortgage origination, new HREMIC origination far outstrips the paydowns of these bonds. The overall HREMIC float could top $20 billion as early as the 4th quarter of this year.

In the first quarter of 2013, HREMIC sponsors used a total of 186 unique HMBS pools (or portions thereof) to create 65 classes of bonds. In doing so, they securitized nearly half of the new HMBS pools issued thus far in 2013. Since 2009, over 1000 unique HMBS pools have been securitized into HREMICs; we estimate that at least 70% of all new HECM supply will eventually find its way into HREMICs. Most of the HREMICs issued this quarter are backed by HMBS pools issued in 2013 and the latter part of 2012, but some include HMBS collateral issued as far back as 2009.

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. In other words, the HECM loans are the collateral for the HMBS, which in turn serve as the collateral for the HREMIC. 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.

HREMICs 2012

Monday, January 7th, 2013

Ginnie Mae’s HMBS and HREMIC programs serve as the main engine of finance for the reverse mortgage industry. According to Ginnie Mae’s published data, a record 31 HREMICs totaling $6.013 billion were issued in 2012, double the amount issued in 2011. For 2012, BofA Merrill Lynch was again the top underwriter/sponsor, leading 10 offerings totaling just under $2.2 billion. Knight Capital and Barclays placed second and third, with 8 HREMICs apiece totaling $1.6 and $1.5 billion, respectively. BAML has captured the top spot all 4 years the program has existed, beginning in 2009 when they sponsored the one and only HREMIC of that year.

Since the first HREMIC was issued in 2009, 83 transactions totaling over $14.8 billion have been issued. Despite the decline in reverse mortgage origination, new HREMIC origination far outstrips the paydowns of these bonds. The overall HREMIC float could top $20 billion as early as the 4th quarter of 2013.

In 2012, HREMIC sponsors used a total of 495 unique HMBS pools (or portions thereof) to create 222 classes of bonds. In doing so, they securitized over 300 of the 556 new HMBS pools issued in 2012. Since 2009, nearly 1,000 unique HMBS pools have been securitized into HREMICs; we estimate that at least 70% of all HECM supply is finding its way into HREMICs. The $6 billion HREMIC volume in 2012 was very neatly split between fixed and adjustable-rate HMBS, comprising 49.7% and 50.3% of the total, respectively.

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. In other words, the HECM loans are the collateral for the HMBS, which in turn serve as the collateral for the HREMIC. 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.

The basic structuring method in HREMIC involves bifurcating the underlying HMBS cash flow into a conventional, principal and interest bond and an interest-only (“IO”) class. The conventional bond pays a pass-through rate that results in a price at or near par and is typically sold to a traditional MBS investor (bank, insurance company, bond fund, etc.). The conventional bond’s pass-through rate is typically less than the HMBS pass-through rate, leaving an excess interest strip that is paid to the IO Class. The IO security is sold to a more risk-seeking investor, such as a hedge fund. The HREMIC is profitable if this structure creates total value that exceeds the price of the underlying HMBS: in other words, the sum of the bond parts exceeds the collateral whole. This concept is not unique to HREMIC. In fact, it is the essence of securitization, but the combination of premium pass-through coupons and prepayment performance make this simple strategy especially viable for HREMIC.

However, the underlying collateral does not lend itself well to sequential time tranching, another common REMIC structuring technique. Because HECM cash flows are so slow initially, and are then cut off by the 98% assignment to HUD, it is difficult to carve out sequential pay classes with materially different durations, unless one class is comparatively very small. This was done in a few transactions, but sequential classes comprised only about 5% of all principal and interest HREMIC classes in 2012.