HMBS Supply Falls Short in March, Summer Declines Expected

The monthly issuance of Home Equity Conversion Mortgage-Backed Securities (HMBS) has experienced a downward turn to date in 2014, and future declines may also be on the way this year, according to Ginnie Mae and other data compiled by New View Advisors.

As of March 31, 2014, New View notes that HMBS pools with a balance of $47.5 billion are outstanding. While this represents a growth of approximately $300 million compared to February, it is “well below” the average monthly increase of $750 million, according to New View Advisors commentary.

In 2013, HMBS supply rose from $37.5 billion to $46.3 billion, however this year, growth has been declining month-over-month.

For 2014, total supply has increased approximately $500 million, $400 million and $300 million in the months of January, February and March, respectively.

This trend is “not surprising,” writes New View, since prepayment rates are creeping higher as older, seasoned loans are being assigned back to the Department of Housing and Urban Development (HUD) at the 98% Loan Balance-to-Maximum Claim Amount ratio.

“This trend is likely to continue, and the total outstanding supply of HMBS will probably begin to decline sometime this summer,” writes New View. “In other words, prepayments will outweigh the sum of new supply (including tails) and negative amortization.”

Access the commentary and data at New View Advisors

Written by Jason Oliva

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