HMBS January 2020: Beginnings of a Happy New Year?

HMBS issuance totaled $760 million in January 2020, as lower rates continued to strengthen new production. 87 pools were issued in January, including about $550 million of new unseasoned HECM first participation pools, continuing a strong upward trend in production. There were no highly seasoned new issues. For comparison, HMBS issuers sold 97 pools totaling $614 million in January 2019.

Reverse mortgage lenders weathered a long period of reduced new origination volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (“HECMs”) in effect since the beginning of FY2018. However, over the last year new production of HECMs and HMBS has slowly climbed back to its long-term average range of $500 – $600 million.

The HMBS market totaled about $8.3 billion for calendar year 2019, down from $9.6 billion in 2018 and $10.5 billion in 2017. However, securitization of private reverse mortgages is a much bigger factor now. As a result, we estimate that the total issuance of reverse mortgage securities backed by new collateral in 2019 was about the same as 2018.

New production issuance is in a strong upward trend: January’s production of original new loan pools was about $550 million, compared to $484 million in December, $506 million in November, $426 million in October, $393 million in September, $390 million in August, $321 million in July, and barely $300 million in January 2019. Last month’s tail pool issuances totaled $210 million, within the range of recent tail issuance.

January issuance divided into 40 First-Participation or Original pools and 47 tail pools. Original pools are those HMBS pools backed by first participations in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participations. Tails are not from new loans, but they do represent new amounts lent. Tail HMBS issuance can generate profits for years, helping HMBS issuers during challenging times.

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