Home Equity Conversion Mortgage-backed securities recorded over a billion dollars worth of prepayments for a single month. This is the first time ever that such number has been noted.
A potential surge of prepayments
Overall, the current record overtakes May’s already strong data. In May, issuers created 111 pools, totaling $768 million per the New View Advisors. Five hundred forty-three million of these issuances accounted for new issuance loans while new participations in previous issuances made up the rest of the $225 million.
With the current $1.02 billion in total payoffs, the overall size of outstanding floats continues to shrink, now at only $72 million. That leaves a total of $55.1 billion in the HMBS market. This trend is predicted to continue, per the New View, as more seasoned HECMs reach 98 percent of their maximum claim amount, or those who are near their payoff periods.
According to analytics firm RecursionCo, $580 million of the current payoff amount was from loans which already reached the 98 percent of their Maximum Claim Amount. These were assigned to the US Department of Housing and Urban Development. Last month, only 56.9 percent of the total payoff count reached the 98 percent figure, while back in September 2013, only 29.8 percent.
What does this mean for the HMBS issuance market?
Experts predict a continued shrinkage in HMBS float since May already marked the ninth month in a row where there were more payoffs recorded than the amount of issuances. The staggering number of prepayments were attributed to the surge of loans back in 2009 to 2011 when there was a saturated number of HECMs issued.
HECM loans are reverse mortgages that allow seniors homeowners aged 62 and above to tap into their home equities, with no predetermined limit in purpose of usage. The loans are disbursed via a lump sum, a line of credit, or a combination of both. HECM loans are only repaid once the homeowner decides to sell the home, move, or passes away.