Reverse mortgage securities fall to 4-year low

"The market has yet to find its new normal"

The latest data on HECM-backed securities reveals that issuance fell in November to $521 million, hitting the lowest level in four years.

According to a report from New View Advisors, only 84 pools were issued in November, the lowest number since February 2015.

New View wrote that further shrinkage in HMBS float seems inevitable, leaving them to wonder when issuance will hit finally bottom. For months, HMBS issuance has marched downward as low origination volume takes its toll.

It’s a new era for reverse mortgage lenders, New View wrote, as they work to adapt to business under lower principal limit factors that were introduced last year. And, the company pointed out, rising interest rates won’t help things as they generally require lower PLFs.

“Last summer a garden of hopeful metaphors bloomed, in which bouncing dead cats turned the corner just in time to witness the Nadir of the HECM,” New View wrote. “But the market has yet to find its new normal.”

Production of original new loan pools was just under $298 million in November, according to the report, down from October’s $325 million and September’s $360 million.

The new issuance totals of the last several months stand in stark contrast to last year’s totals. October 2017 saw $615 million in new issuance, and November 2017 saw $755 million, a high that can be attributed to a rush of business ahead of program changes.

But new issuance is only part of the picture.

Michael McCully, partner at New View Advisors, told HousingWire that tail issuances are providing a much-needed boost.

Tail issuances – or pools of older loans – totaled $224 million last month, holding steady in recent months but still below previous totals. In October 2017, for example, HMBS tail issuance totaled $264 million.

"Luckily for HMBS issuers, new production figures do not tell the whole story,” McCully said. “While new issuance totaled just $298 million in November, there were an additional $224 million of tails issued during the same period. Tail HMBS issuance can generate profits for years, helping HMBS issuers in challenging periods such as what we’re currently experiencing."

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