Written by Mark Acchione, as originally published in The Reverse Review.

Summing up the secondary market days after the highest volume issuer calls it quits is a daunting task. But history has taught us that our product is extraordinarily resilient and will prevail under the harshest of conditions.

In the hours, days and weeks after Bank of America

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announced its exit, fixed spreads gapped out to a historical wide for the prevailing coupon, liquidity became temporarily scarce and end buyers ignored relative value and priced in the unknown. As reality set in, secondary activity recovered and the dust settled, slowly but surely.

The shock factor that followed just a few months later as Wells Fargo publicized its exit paled in comparison. The market responded to the withdrawal of the industry’s top originator/issuer with little fanfare and a temporary pop in spreads, followed by an immediate correction. Then it was business as usual.

And now, as MetLife exits stage left, the market remains relatively unchanged. As I’m writing this, it’s been days since MetLife’s announcement and pools are trading normally and in line with weeks prior.
So what’s next? Who becomes the beneficiary to the 30 percent-plus HMBS market share MetLife left behind? Urban Financial and RMS, whose aggregate share of February HMBS issuance totaled 48 percent, will likely make an aggressive move to capture the remnant pieces. Generation and Sunwest will naturally increase their shares.

Additionally, growing participation in the HMBS space becomes more important as the industry is handed back to the true specialty mortgage banker. Newly approved issuers and those in line for approval will help fill the gap left by the last of the big banks, supporting a healthy, well-balanced market.
Once again, the program has proved its resiliency. And with or without hearty bank participation, the HECM story remains unchanged. When the dust settles, those who have positioned themselves properly will come out on the other side stronger than ever.