HREMIC Issuance 2016Q3: On Pace For Record Volume (Again)

HREMIC issuance for the first 9 months of 2016 was nearly $7.7 billion, surpassing the first 9 months of 2015’s $6.5 billion, a previous record. The industry remains on pace to set its second consecutive annual issuance record. There have been 21 transactions underwritten by five sponsors, Nomura, Bank of America Merrill Lynch, Barclays, RBC, and Citicorp. Nomura remains the #1 issuer, with $4.5 billion, almost half their life-to-date issuance of $9.2 billion. Bank of America Merrill Lynch was second with $2.7 billion. Life-to-date BAML has issued $17.2 billion of HREMICs, for a 41% market share. Nomura has issued 22% of all HREMICs, and Barclays 14%. This is the first HREMIC transaction for Citicorp, bringing the number of current HREMIC issuers back to five for the first time since 2014.

Approximately 77% of outstanding HMBS securities have been resecuritized into HREMICs, up from 73% at the end of 2016Q2. A stronger bid for the Interest-Only HREMIC classes emerged last year, 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.hremic-issuer-rankings-2016q3

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