In January, HREMIC deal issuance was $436 million, slightly higher than December 2012’s total of $400 million. Knight Capital Group, Bank of America Merrill Lynch and Royal Bank of Scotland brought deals of $171 million, $146 million and $118 million respectively. More than $6 billion in HREMIC issuance was brought to market by securities firms in 2012, and I would expect continued robust issuance in early 2013 given the superior execution levels.
Deal execution has kept spreads for HMBS well bid, with originators hedging their pipelines with March settlement bonds. January HMBS issuance topped $800 million with Reverse Mortgage Solutions at $283 million and Urban Financial Group at $281 million of issuance respectively, comprising 70 percent of the market share. Generation Mortgage, Livewell Financial, Nationstar, Sunwest Mortgage, Bank of America and One West also issued during January.
The split of fixed versus floating was roughly 75 to 25 percent. Current levels for fixed-rate Standard HMBS are roughly 60 to swaps for new production, mid-50s to swaps for four- to five-year average life secondary paper, high 30s to swaps for three- to four-year paper, low to mid-20s to swaps for two- to three-year paper, and low- to mid-teens to swaps for less than two-year average life HMBS. Floating Standard has been trading in the low 40s discount margin for March settle.
HUD released Mortgagee Letter 2013-01, which specified that fixed Standard loans must close by July 1, 2013. I’d expect full pools of fixed Standard to be brought to market through the end of the summer and the origination mix to begin to shift and be dominated by fixed Saver and floating Standard. With HECM endorsements down 25 percent in fiscal year 2012 versus 2011, and down for the third consecutive year, there isn’t much to lean on in 2013 to stem this trend.
Past policy changes, the downstream shifting of the originator landscape, congressional scrutiny about the viability of the FHA and prospective changes to the program should keep volume in line with 2012 (55k units). The industry should expect more announcements from the FHA in 2013, as the agency is currently seeking legislative authority to amend the program to ensure its long-term viability. Guidance on financial assessment, limitations on initial draws at origination, and tax and insurance set-asides are all expected this year, which should continue to pressure origination volume. Additionally, the FHA is working on an incentive plan for estate executors at the time the loan is due and payable to help mitigate losses for the program.
As unpleasant as it is with all of these current and prospective changes, coupled with the FHA “viability” debate happening between Republicans and Democrats, there’s no disputing the fact that every day for the next
19 years 10,000 baby boomers will turn 65 years old. The 79 million members of the baby boomer generation account for roughly 26 percent of the total U.S. population. According to Pew Research, economically, boomers are the
most likely among all other age groups to report a greater loss of money on investments since the Great Recession began. According to Pew Research, 57 percent of boomers say their household finances have recently declined.
Entitlement programs are under intense stress in the U.S., and one can hope members on the Hill will see the reverse mortgage loan as an essential tool to alleviate the growing pressure. Over time, originators will increase penetration rates and the market will grow much larger, but until then, the resolve of industry participants will continue to be tested.