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What Is Impacting HMBS Performance?

The issuance of new Home Equity Conversion Mortgage-backed securities (HMBS) remained stable in April at slightly above $567 million according to an analysis by New View Advisors [1] citing Ginnie Mae [2] HMBS data.

The analysis said that the month's data was consistent with recent months that have seen a much lower issuance compared to the past few months.

The data revealed that 86 pools were issued in April, including about $300 million of new first participation pools compared to 120 pools totaling $1.2 billion sold by HMBS issuers during the same period last year. New View projected that HMBS float shrinkage will continue "as April’s payoffs are almost certain to outweigh new issuance and interest roll-up."

Additionally, the analysis said that reverse mortgage lenders were facing a "new era of reduced volume, primarily due to the lower PLFs for Home Equity Conversion Mortgages (HECMs)" that has been in effect since the beginning of 2018. Looking at past years' data, it found that HMBS issuance had reduced to a total of $9.6 billion in 2018 compared to $10.5 billion in 2017.

"The HMBS market will be hard pressed to equal last year's totals, which include some HMBS issuance backed by new HECM loans originated at higher PLFs," New View said in its analysis.

For 2019, New View saw similar volume statistics "other than the occasional seasoned first participation issue: $300 million in April, $277 million in March, $274 in February, and $304 million in January. April’s tail pool issuances totaled $221 million, within the range of recent tail issuance."

The analysis also commented on the recent HMBS pools of Live Well Financial, which has issued over $160 million in HMBS pools since it sold HMBS books to RMF in 2018. In April, Live Well issued nine HMBS pools totaling $32 million, the analysis revealed.

Breaking up the pool issuance, New View said that the April 2019 issuance was divided into 36 original pools and 50 tail pools. Original pools are those HMBS pools backed by first participation in previously uncertificated HECM loans. Tail HMBS issuances are HMBS pools consisting of subsequent participation. Tails are not from new loans, but they do represent new amounts lent. Tail HMBS issuance can generate profits for years, helping HMBS issuers during challenging times.