Reverse mortgage securities see December uptick, but don’t be fooled

Highly seasoned pools mask the bleak reality of new lows

The latest data from New View Advisors on HECM-backed securities sheds light on what analysts call “a new era of reduced volume.”

December issuance totaled $619 million, which might seem like a boost compared with November’s $521 million – a low the industry hadn’t seen in four years.

But a closer look reveals that three highly seasoned pools of original collateral – or pools of old loans – provided the bump. New issuance for the month totaled just $277 million, making additional shrinkage in HMBS float likely.

A look at monthly totals of new loan pools illustrates a steady march downward:

$360 million – September
$325 million – October
$298 million – November
$277 million – December

Annual issuance totals support the bleak narrative, coming in at $9.6 billion for 2018, compared with $10.5 billion in 2017.

New View said it is not optimistic that the year ahead will see things turn around.

“The various headwinds facing the market, higher interest rates, lower PLFs, etc., will probably reduce volume further in 2019,” analysts wrote in their monthly commentary.

Thankfully, tail issuance provided some help in December. Of all the pools issued last month, 39 were original pools while 56 were tail pools, or pools consisting of subsequent participations. New View said tail pools are crucial as they can help generate profits for years, giving a much-needed boost to HMBS issuers in challenging times.  

Here are the top five HMBS issues of 2018:
Reverse Mortgage Funding: $3.92 billion (40% market share)
American Advisors Group: $1.91 billion (20% market share)
Finance of America Reverse: $1.34 billion (14% market share)
Ocwen Loan Servicing: $728.7 million (10% market share)
Longbridge Financial: $599 million (6% market share)

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