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

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.

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