January HMBS Issuance Signals Sluggish Year Ahead

The production of new Home Equity Conversion Mortgage-backed securities (HMBS) declined in January to $614 million. This is down from December’s stronger showing but still maintains similar numbers to those found in recent months, which could also indicate lower volume for the year when compared with 2018. This is according to publicly available GNMA data and private sources compiled by New View Advisors.

Though December 2018 saw some recovery from November’s issuance figures – which were the lowest in four years – New View writes in its accompanying commentary that a dip still occurred in January’s numbers despite some help from “one highly seasoned pool of original collateral.”

This means that 2019’s total volume will have a lot of difficulty reaching 2018’s full year numbers according to Michael McCully, partner at New View Advisors.

“New issuance, therefore origination volume, remains weak,” McCully tells RMD in an email. “Even with the occasional seasoned pool issuance, overall HMBS volume continues to slide. The universe of seasoned HECMs to securitize is also finite. Based on these trends, we believe 2019 HMBS volume will be lower than 2018.”

This is because of the new realities facing the reverse mortgage industry ever since new rules concerning principal limit factors (PLFs) were handed down by the Department of Housing and Urban Development (HUD) in October 2017. New View stated in their commentary that total annual HMBS for 2019 will have difficulty in matching the total 2018 figure, which was itself notably reduced from 2017’s annual figure.

“97 pools were issued in January, including just over $300 million of new first participation pools,” New View said. “HMBS float shrinkage will continue as January’s prepayments are almost certain to outweigh new issuance and interest roll-up.”

New production of original loan pools increased to $304 million, outperforming totals for November and December but coming in below October’s figure of $325 million. This is still a far cry from where things stood one year ago.

“By comparison, HMBS issuers sold 111 pools totaling $869 million in January 2018,” the commentary wrote.

Read the full commentary at New View Advisors.

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