HMBS January 2021 Part II: Mad Dash to the LIBOR Exit

Outstanding HMBS rose by about $285 million in January 2021, as issuers rushed to issue new LIBOR pools. After February 2021, GNMA will no longer allow issuance of HMBS pools backed by first participations of LIBOR-indexed HECMs. Payoffs fell significantly to about $790 million. Total outstanding HMBS is now over $56 billion, the highest total in two and a half years.

In 2019, HMBS posted its lowest annual issuance total in five years. But in 2020 low interest rates and a higher lending limit boosted production significantly to a near-record $10.6 billion. The industry may struggle to reach the same levels of production in 2021.

“Peak Buyout” was an echo of the peak issuance from 2009 through the first half of 2013. Much of this production has already been repurchased by the issuers or repaid by borrowers. Each month fewer and fewer of these peak issuance loans remain, and so fewer HECM loans reach their buyout threshold, equal to 98% of their Maximum Claim Amount (“MCA”). Our friends at Recursion broke down the prepayment numbers further: las month’s 98% MCA mandatory purchases totaled $252 million, near December 2020’s 6-year low. This continues the downward trend from the buyout peak in the third quarter of 2018, which averaged over $750 million in Mandatory Purchases per month. With buyouts at less than one-third their peak level, Peak Buyout is long gone.

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


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