HMBS January 2022 Part II: New Year’s Resolutions Are Hard to Keep

Outstanding HMBS rose to an all-time high of $57.3 billion in January 2022 as issuance outpaced another big refinance-driven month of payoffs. If the industry resolved to shake off its dependence on refinancings in 2022, that New Year’s resolution (like most others) was broken before February arrived.

Driven by high levels of refinancing, HMBS payoffs exceeded $1 billion for the eleventh month in a row. Outstanding HMBS rose by $259 million despite these near-record payoffs. January’s data is a continuing disappointment to HMBS investors hoping for a cooling off of prepayments. While falling short of December and November’s record payoffs, January came close in both dollar amount and speed: $1.2 billion, representing a 23% annual payoff rate.

We noted last month that AAG sold most of its HMBS issuance portfolio to RMF, and Mr. Cooper Group sold its HMBS portfolio to Mortgage Assets Management, LLC (“MAM”). The resulting consolidation leaves the top five issuers accounting for about 93% of all outstanding HMBS.

RMF is now the issuer of record for over 3,800 pools totaling more than $23.2 billion, 40%+ of all outstanding HMBS. The Mr. Cooper purchase puts MAM in third place with a portfolio of over 3,100 HMBS pools totaling $7.3 billion.

In these strategic transactions, the purchasing issuer pays the selling issuer the present value of the issuer’s uncertificated position, which is the difference between future HECM cash flow and future HMBS cash flow. The buyer becomes the issuer for the purchased HMBS pools, and therefore benefits from the excess spread of the HECM interest rate over the HMBS pass-through rate. The buyer also receives any premiums from future tail issuance. Of course, the buyer also assumes the many liabilities of an HMBS issuer: advancing MIP, borrower draws, realized losses from claims, and many others.

Our friends at Recursion broke down the prepayment numbers further: last month’s 98% MCA mandatory purchases totaled $256 million, about 21% of the total.

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