The latest data on HECM-backed securities shows issuance continued its decline in October, and while HMBS float last month was up slightly to $55.5 billion, most of that can be attributed to highly seasoned collateral and not to new production.
This means that it’s only a matter of time before HMBS float falls below the $55 billion mark – a vector that indicates less liquidity for investors.
According to a report released by New View Advisors, HMBS issuance in October totaled just over $1 billion, but $473 million of this was due to highly seasoned issuance.
New loan pools totaled just $325 million in October, down from $360 million in September and $615 million in October 2017.
New View’s Michael McCully said Reverse Mortgage Funding has bolstered issuance totals with pools of highly seasoned collateral, but a deeper dive reveals the stark reality of a struggling market.
“RMF continues to purchase highly seasoned HECM collateral and turn them into HMBS,” McCully said. “Without the RMF highly seasoned HMBS issuance, outstanding HMBS float would have long ago breached $55 billion on the downside.”
“While $55 billion is not a significant threshold by itself, a drop below the historical range of $55 to $57 billion signals new originations are not keeping up with payoffs,” McCully continued. “At what point does declining float affect HMBS liquidity?”
New View data also shows that the industry might be witnessing the end of a massive wave of payoffs to the Department of Housing and Urban Development.
When loans reach their maximum claim amount of 98%, lenders have the option of assigning them to HUD for payment.
Recently, HUD has been burdened with a glut of payments from loans originated during the HECM’s peak years that are now reaching maturation.
“While aggregate payoffs continue to hover around $1 billion per month, assignments to HUD continue to slow, suggesting we are increasingly likely past ‘peak buyout,’” McCully said, explaining that the glut is a result of loans issued from 2009 through the first half of 2013.
McCully said $632 million worth of HECMs were assigned to HUD last month, down from August’s record $869 million.
“Much of this production has already been repurchased or repaid by borrowers,” New View's report explained. “Payoffs have exceeded $1 billion per month for 12 of the last 15 months as many loans reached their buyout threshold.”