August HMBS Data Shows Benefits of Lower Interest Rates

The production of new Home Equity Conversion Mortgage-backed securities (HMBS) totaled $637 million in August, with lower interest rates strengthening new production. This is according to publicly available GNMA data and private sources compiled by New View Advisors.

August saw 93 pools issued, which included approximately $390 million of new unseasoned Home Equity Conversion Mortgage (HECM) first participation pools, the highest monthly total for new production this year, New View says.

While HMBS issuance totaled over $1 billion in July, the discrepancy between the July and August totals is accounted for according to Michael McCully, partner at New View Advisors.

“Total issuance dropped from $1.09 billion in July to $637 million in August,” McCully told RMD in an email. “There was a $544 million pool of seasoned HECMs securitized in July, explaining the difference.”

In terms of what this month’s data means for observing the trajectory of the business, there’s a more positive trend to observe out of the August data, he says.

“The trend of note is the upward curve on original new HECMs being securitized,” McCully says. “$390 million in August is a big jump over earlier months in 2019.”

A beneficial interest rate environment is diminishing much of the effects of October 2, 2017’s cuts to principal limit factors (PLFs), the cuts themselves being corrective action that the Federal Housing Administration (FHA) took in order to ensure the longevity and financial viability of the HECM program.

Production of new, original loan pools reached the highest recorded levels of 2019, while HMBS tail issuance was also at the “high end” of recorded levels for the year, according to New View’s accompanying commentary.

“August’s production of original new loan pools was about $390 million, compared to $321 million in July, $331 million in June, $325 million in May, $300 million in April, $277 million in March, $274 in February, and $304 million in January,” New View writes in its commentary accompanying the data. “Last month’s tail pool issuances totaled $243 million, on the high end of the range of recent tail issuance. As predicted last month, we are seeing the benefit of lower interest rates helping new origination volume.”

Read the full commentary at New View Advisors.

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