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HECM mortgage-backed securities data reveals low flow and lots of payoffs

Issuance totals highlight concerns about market health

The latest data on HECM mortgage-backed securities sheds light on issues plaguing the struggling reverse mortgage industry.

A report released Thursday by New View Advisors shows that HMBS issuance inched up slightly in August to just over $579 million, but that’s not much of an increase over July’s total, which was a low the industry hadn’t seen in nearly four years.

New View said HMBS float has now fallen below $55.5 billion.

Since February 2017, float has remained stagnant between $55 billion and $57 billion, but New View said the industry may see float fall below this range as soon as next month thanks to low volume and a high rate of payoffs.

“Outstanding float is trending down as we’ve been writing for the last year and a half,” said New View Advisors Partner Michael McCully. “We’re experiencing downward pressure as origination volume declines and at the same time, this massive wave of assignments to HUD is occurring.”

Payoffs have exceeded $1 billion per month for 11 of the last 13 months, according to New View’s report, which said the trend is likely to continue as more loans reach their buyout threshold, which is 98% of their Maximum Claim Amount.

New View said MCA mandatory purchases accounted for a record-shattering 70% of the payoffs in August.

“These assignments back to HUD are staggering – $869 million dollars in August alone,” McCully said. “Think of the implications. There’s a processing backlog that will be increasingly challenging for HUD. The period of time between buyout and assignment probably lengthens as they process this increased volume, which increases financing pressure on originators.”

But McCully said New View is cautiously optimistic that the rate of payoffs will begin to slow down soon.

“We do believe assignments will start to trend down, maybe as soon as the fourth quarter,” McCully said. “We’re seeing the pig in the python of fixed-rate, full-draw originations from 2009-2012, but assignments will taper off, it’s just hard to project when.”

Considering the current climate in the space, though, it’s unlikely things will drastically improve any time soon.

 “Meanwhile, reverse mortgage lenders face a long winter of reduced volume, primarily due to the new lower Principal Limit Factors for Home Equity Conversion Mortgages effective this fiscal year,” the report continued. “Rising interest rates will not help either, as they generally require lower PLFs.”

According to the report, production of original new loan pools totaled $344 million, up $26 million from last month.

“But these small, short-term upticks in HMBS production or HECM endorsements are hardly proof of a recovery or even a dead cat bounce,” New View wrote. “They are more like the window awnings that break the fall of a cat from a high roof.”

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