February HMBS Issuance Hits Lowest Level in Nearly Five Years

The production of new Home Equity Conversion Mortgage-backed securities (HMBS) declined in February to just under $491 million, the lowest level in nearly five years following a recent downward trend, but it was also weakened further by less days in the month and a lack of any highly-seasoned pools. This is according to publicly available GNMA data and private sources compiled by New View Advisors.

The downward trend continues in the new year, with December being the most recent month to see HMBS issuance grow in comparison to a prior month. This general reduction in activity continues to stem from the changes instituted to the Home Equity Conversion Mortgage (HECM) program in October 2017, reducing principal limit factors (PLFs), according to New View.

“For the entire year of 2018, HMBS issuance totaled about $9.6 billion, compared to $10.5 billion in 2017,” New View wrote in its commentary accompanying the data. “The HMBS market will be hard-pressed to equal last year’s totals, which included some HMBS issuance backed by new HECM loans originated at higher PLFs.”

When asked if tail pool issuance could help issuers in the face of a downturn, New View partner Joe Kelly told RMD that it is possible, but could be mitigated if the general issuance decline continues.

“Tail pools provide a multi-year stream of premium income for issuers,” Kelly told RMD in an email. “This in turn helps the originators who sell their loans to the issuers, as it makes their loans more valuable. Tail issuance provides premium income that is vital to the industry during downturns in new loan origination volume. However, if the decline in new loan volume persists, tail pool issuance will ‘tail off.’ This will reduce premium income not only from lower volume but also declining duration.”

The production of new, original new loan pools came in at about $274 million, which is down from the recorded $304 million in January. Last month’s tail pool issuances totaled $217 million, which is generally still within the range of recent tail issuances recorded in months prior. Still, the total of sold pools and their dollar amounts is considerably lower than where these figures were at the same time last year.

“By comparison, HMBS issuers sold 129 pools totaling $1.47 billion in February 2018,” the commentary wrote.

Read the full commentary at New View Advisors.

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