Reverse Mortgage Securities Headed for Record Low Issuance in 2014

Issuers of Home Equity Conversion Mortgage (HECM) mortgage-backed securities (HMBS) posted their third-highest tally of the year in November, but it might not be enough to prevent total HMBS issuance from reaching a record-low come year’s end, according to New View Advisors’ recent commentary on Ginnie Mae data.

HMBS issuers sold $628 million in new pools during November, down from October’s $690 million, which was the second-highest month for HMBS issuance in 2014. In January, HMBS issuers sold $711 million in HMBS pools.

With November’s numbers, the total HMBS tally is $5.4 billion year-to-date. 

“It is all but certain that 2014 will be the lowest full year of issuance since 2008, when HMBS was a fledgling program that had yet to be adopted by most market participants,” writes New View in its commentary on the publicly available Ginnie Mae data.

November’s breakdown included 91 pools being issued during the month, consisting of 49 original issuances and 42 tail pools. This was also the third month this year that saw 91 pools issued. 

Of note, however, is the 42 tail issuances during the month totaled $130 million, which New View notes is the highest number of tail pools issued in any month and the second-highest dollar amount.

Original HMBS pools are created when a pool of FHA-insured HECMs is securitized for the first time. Tail HMBS issuances are HMBS pools created from the uncertificated portions of HECMs that have already had their original HMBS issuance.

A year ago, in November 2013, HMBS issuance totaled $878 million and averaged nearly $800 million per month during 2013. In this year thus far, HMBS issuance is averaging only $543 million per month.  

Since newly originated loans comprise a majority of HMBS issuance in any given month, New View suggests that HMBS issuance is a relatively good barometer of recent HECM production. 

Changes to the HECM program enacted in the past year, as well as some newer rules announced this year have depressed loan production. 

“Beginning with FY 2014, HECM principal limits were cut once again, and FHA imposed new restrictions on the initial draw allowed for certain borrowers,” New View writes. “The resulting lower HECM production inevitably reduces HMBS production.”

But it’s not just the HMBS side that has been slipping.

Ginnie Mae issuance is down significantly overall with just $27.7 billion issued in November, a decline from the $31.4 billion issued the previous month.

Total Ginnie Mae issuance is also lower overall when compared to FY 2013, when issuance averaged $38 billion per month, including both forward, reverse, Ginnie Mae I and II securities. 

View the New View Commentary. 

Written by Jason Oliva

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