On the heels of a strong December 2011, fixed HECM spreads have continued to tighten here amid a fairly furious rally in rates in the first few weeks of January. Floaters have continued to underperform, with IOs still well bid. Issuance in 2011 finished just shy of $10 billion with another $3 billion of HREMIC issuance. Demand for HMBS and structure has been broad-based among the asset manager community. We also saw another $215 million securitized in December, consisting of fixed and floating rate strips and IO. Reverse mortgage pools, strips and IOs remain cheap here versus other U.S. government-guaranteed assets, with further room to tighten as long as rates behave. The macro environment remains under pressure with no immediate credible solutions to address Europe’s debt crisis, sovereign downgrades and Washington, D.C. in gridlock. However, mortgages have done especially well the first 10 trading sessions of the year. Expect this to continue given the technicals and subdued callability of collateral.
Prepayment speeds saw a fairly sizable uptick in December. Through our lens, we’re seeing speeds up 20-25 percent month over month. Additionally, there were some pretty glaring differences in performance among GNMA issuers. Overall, the universe of standard HMBS is tracking well below the HECM prepay curve at roughly 70 percent. For 2011 fixed rates, we’re seeing one-month speeds come in at roughly 2.5 cpr with adjustable rates at 5.62 cpr.
Meanwhile, 2010 fixed rates came in at 3.67 cpr,
which generally looks like 45 percent of the pricing curve, and floaters 6.45 cpr and roughly 80 percent of the pricing curve. The 2009 fixed-rate one-month speeds came in at 6.79 cpr, and 2009 floating rate collateral came in 4 cpr. One trend that hasn’t changed is fixed-rate speeds coming in materially lower than adjustable rate speeds in 2011.
Additionally, with more than 300 million HECM Saver issuances in 2011, Saver speeds have come in much faster compared to Standard, as expected. Again, there are notable differences among the GNMA Issuer community, but looking at the first full year of data on Saver, it’s pretty much a foregone conclusion that Saver borrowers prepay faster. Lastly, we’re hopeful that by the time this article is published, Yieldbook will be released, which should help liquidity and account sponsorship.
