Dog Days of December: Return to the New Normalcy; Fixed Rate Adjusts Down

The HMBS market returned to the new normal of the post-Financial Assessment era last month. Issuers created approximately $685 million in new HMBS pools during December 2015, down sharply from November’s $1.2 billion. Without any large seasoned pools, HMBS reverted to what is now a more usual month of issuance: $515 million in original loan pools and tail issuance of $170 million. A total of 92 pools were issued, consisting of 48 original issuances and 44 tail pools.

HMBS issuance in 2015 totaled about $9.5 billion, well above 2014’s $6.6 billion. This $2.9 billion increase consisted of a $1.0 billion increase in tail issuance, a $0.3 billion increase in seasoned original pool issuance, and an encouraging $1.6 billion increase in HMBS issues backed by pools of new loans.

Total outstanding HMBS is still about $53.3 billion, up only $58 million from the end of November. We estimate that this small increase is composed of approximately $162 million in negative amortization, plus the $685 million in new issuance, minus a record $789 million in payoffs. Payoffs are trending higher, driven primarily by assignments to HUD of seasoned HECM loans whose loan balances have reached 98% of their Maximum Claim Amount. Total HMBS float could soon shrink for the first time as early as this month.

The supply of outstanding Fixed Rate HMBS is already shrinking rapidly, to $29.1 billion at year end, down approximately $200 million from the end of November, and down almost $2.5 billion from its peak of about $31.5 billion in mid-2014. During 2015, Fixed Rate issuance accounted for only 19.0% of total issuance, down from 32.1% in 2014.

Original HMBS pools are created when a pool of FHA-insured Home Equity Conversion Mortgages (“HECMs”) is securitized for the first time. Tail HMBS issuances are HMBS pools created from the Uncertificated Portions of previously securitized HECMs. Newly originated loans usually comprise a large majority of HMBS issuance in any given month. As a result, HMBS issuance is a good barometer of recent HECM production.

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

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