HMBS issuers sold $498 million in new pools during September 2014, only the fourth month since May 2009 with less than $500 million in HMBS issuance. Last month’s total was $518 million. 80 pools were issued, consisting of 42 original issuances and 38 tail pools. By comparison, HMBS issuance totaled $662 million in September 2013, and averaged nearly $800 million per month during 2013. Thus far in 2014, HMBS issuance is averaging only $517 million per month.
Total HMBS outstanding is now just under $48.9 billion, up from $48.7 at the end of August. This is only the second time since 2009 that total HMBS float has increased by less than $200 million. HMBS float increases with new issuance and negative amortization and decreases with payoffs of underlying HECMs. The prepayment rates of HECM loans underlying HMBS pools continue to edge up, exceeding 11% over the last 6 months. This trend should continue for some time, as more and more seasoned HECM loans are assigned to FHA as their unpaid balances reach 98% of the Maximum Claim Amount. If issuance and interest rates stay low, overall HMBS outstanding may decline for the first time.
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 HECMs that have already had their original HMBS issuance. Tail issuances helped, accounting for about $122 million in September.
Newly originated loans comprise a large majority of HMBS issuance in any given month. As a result, HMBS issuance is a good barometer of recent HECM production. At the beginning of FY 2014, HECM principal limits were cut once again, and FHA imposed new restrictions on the initial draw allowed for certain borrowers. The resulting lower HECM production inevitably reduces HMBS production. However, beginning August 2014, FHA published a new table raising certain principal limits for HECMs at current market interest rates. If interest rates stay low, this may increase HMBS issuance for the remainder of 2014.
Overall Ginnie Mae issuance is down significantly, with $28 billion issued in September 2014, compared to an average of $38 billion per month in FY 2013. September’s total represents the first monthly decline for Ginnie Mae issuance since March of this year. (These figures include both forward and reverse, Ginnie Mae I and Ginnie Mae II securities.)
New View Advisors compiled this data from publicly available Ginnie Mae data as well as private sources.