Reverse Mortgage-backed Securities See a ‘Banner’ Production Month in August

The production of new Home Equity Conversion Mortgage-backed securities (HMBS) totaled approximately $859 million in August as both recovered capital markets and lower interest rates continue to strengthen new production, marking a “banner month” as HMBS issuers continued to see pronounced new production totals. This is according to publicly available Ginnie Mae data and private sources compiled by New View Advisors.

August saw approximately $666 million of new, unseasoned first participation HECM pools, a figure that is slightly reduced from the July total of $691 million but an impressive figure nonetheless, according to New View.

“[The total of new pools is] nonetheless impressive compared to $593 million in June, $586 million in May, $470 million in April, $455 million in March, $501 million in February, and a mere $390 million in August 2019,” New View writes in its commentary accompanying the data.

$6.7 billion in HMBS has been issued so far in 2020, which is on track to surpass the 2019 full year figure of $8.3 billion and the 2018 figure of $9.6 billion, the commentary reads.

“Even 2017’s total issuance of $10.5 billion is in reach with a few more months of strong production,” New View writes. “Also, securitization of private reverse mortgages is a much bigger factor in overall origination volume. We estimate the total issuance of reverse mortgage securities backed by new collateral in 2019 was about the same as 2018. Private reverse mortgage lenders that suspended programs have resumed lending, and private label securitizations are being placed by multiple issuers.”

Coming in slightly below other recent figures is August’s tail pool issuances, which is tallied at $193 million. Typical tail pool issuance range has been between $200-225 million, according to New View.

While the reverse mortgage industry has seen notable benefits in recent months, there is still the possibility of additional difficulty ahead due to a couple of factors including the imminent sunset and transition to a new rate index, and continuing economic tumult extending out of the ongoing health crisis related to the COVID-19 coronavirus pandemic.

“Reverse mortgage lenders weathered a long period of reduced new origination volume, primarily due to the new lower PLFs for Home Equity Conversion Mortgages (HECMs) in effect since the beginning of FY2018,” New View writes. “But HECM production steadily recovered, and now new production of HMBS exceeds its long-term average range of $500 – $600 million.”

Assistance has arrived to the industry in the form of the rate environment and the private market, but looking further down the road would likely be helpful in determining the future course of the industry, New View says.

“Helped not only by historically low interest rates, but also lower default rates and the reemergence of proprietary loans, the reverse mortgage market is stronger than ever. However, this strength may soon be challenged by economic conditions and the transition out of LIBOR.”

Read the full commentary at New View Advisors.

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