Reverse Mortgage Securities Stagger to Monthly Low in July

In July 2014, issuance of Home Equity Conversion Mortgage (HECM) mortgage backed securities (HMBS) hit one its lowest monthly levels since 2009, however, recent program changes may bring some upside in the remainder of the year, according to recent commentary from New View Advisors. 

HMBS issuers created $507 million in new HMBS pools last month, according to public data compiled by Ginnie Mae, approximately 56.8% lower compared to the $795 million recorded in July 2013. 

Although July was the fifth smallest monthly HMBS issuance since May 2009, it was up from last month’s $439 million. So far in 2014, HMBS issuance is also trailing last year’s progress, currently averaging only $520 million per month, versus the average $800 million per month during 2013. 

In total, 85 pools were issued in July consisting of 42 original issuances and 43 tail pools. Tail issuances helped, New View notes, as they represented about $149 million, up from $28 million in June. If tail issuance continues at its pace, it could bode well for the industry come year’s end. 

“Total tail issuance could reach $200 million per month by year’s end, a welcome source of profitability to the reverse mortgage industry,” New View says.

As newly originated loans comprise a majority of HMBS issuance  in any given month, the issuance is a “good” barometer of recent HECM production, says New View. 

Production has been reduced as of late, as a result of changes to principal limit factors (PLFs) at the beginning of FY 2014 and restrictions that limit the initial draw for some borrowers. 

However, with the newly published PLFs that took effect early August, which were raised at current interest rates and allow more proceeds for certain reverse mortgage borrowers, HMBS issuance may increase for the remainder of 2014, that is, if interest rates stay low, says New View.  

Read the New View Advisors commentary.

Written by Jason Oliva

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