Ginnie In Brief
|Ginnie Mae Announces Temporary Pooling Restrictions for Re-performing Mortgage Loans|
|by Seth D. Appleton | 6/29/2020|
Today Ginnie Mae published APM 20-07, which announces changes to our policy concerning the re-pooling of certain loans that have been bought out of pools. These changes were driven by the borrower relief and loss mitigation policies implemented by the insuring and guaranteeing agencies (HUD, VA, and USDA) in response to the COVID-19 national emergency, and our analysis of how those policies might affect the performance of Ginnie Mae securities and the future price of credit under the federal mortgage programs.
At the heart of this is the issuer’s option to buy a loan out of a pool after 90 days of delinquency. The buyout option exists because – in contrast to the Government Sponsored Enterprises – Ginnie Mae is not the issuer of the pools it guarantees, and does not utilize its own balance sheet to manage delinquencies (in the normal course). The buyout option therefore gives an issuer the ability to have some control over its exposure to the scheduled principal and interest pass-through requirement that applies to loans in pools, as well as to Ginnie Mae’s delinquency thresholds, from which Ginnie Mae has also provided relief to issuers as part of our response to the national emergency.
As with refinances, buyouts can cause an economic loss for security holders when mortgage-backed securities trade at premium prices. As a general matter, the risk of such losses is a normal consequence of investing in this asset class. What Ginnie Mae guards against in particular, however, are scenarios where liquidations (and losses) occur as the result of unanticipated events or gaps in government policy – the risk being that a commensurate loss of confidence in the security on the part of investors would translate into lower security prices and ultimately a higher cost for the homeowners the program is intended to serve.
A combination of circumstances arising out of COVID-19 presents a high risk of triggering buyout activity that could undermine the integrity of the MBS program, namely transactions in which resolution of a delinquency is known to come from an agency insurance or guaranty payment that does not require a buyout – but where a buyout is executed anyway solely to allow the issuer to capture premium security pricing.
Ideally, Ginnie Mae would prohibit only those types of buyouts. But in practice, it is impossible to identify those types of buyouts as they happen; buyouts can occur at different times and are driven by a variety of considerations. Care must be taken, in protecting against transactions that could be harmful to the program, to impinge as little as possible on the ability to buy out loans in the manner the program terms are intended to facilitate.
For this reason, Ginnie Mae’s approach to the unique COVID-19 circumstances is to leave the buyout rules unaltered and instead place restrictions on the ability to re-pool certain re-performing mortgages previously bought out of pools. This should lessen the economic incentives to strategically buy out loans in a way that may be harmful to the integrity of the MBS program (as more fully detailed in APM 20-07), while still maintaining an avenue to redeliver loans into securities guaranteed by Ginnie Mae.
While we recognize that this approach may not be fully satisfactory to any of the constituencies that are affected by buyout and re-pooling transactions, we believe that it represents a reasonable and appropriate balancing of the interests at stake and maintains the focus appropriately on the loss mitigation activities that will help affected homeowners.
|Global Investors Seeking More Ginnie Mae MBS in Portfolio|
|by Alven Lam | 6/22/2020|
At Ginnie Mae we are committed to our mission of bringing global capital into the American housing finance system. The mobilization of investment into Ginnie Mae mortgage-backed securities (MBS), from capital markets throughout the world, ensures borrowers from different walks of life—including first-time home buyers, lower-income home buyers, veterans or those living in rural areas—can access affordable housing finance, even in the worst of times. The insurance and guarantees placed on the loans in Ginnie Mae securities attract investors concerned about credit risk with other fixed income products.
The full faith and credit guaranty of the United States government on Ginnie Mae MBS and multiclass securities is another reason that our products are attractive to investors. The Ginnie Mae guaranty gives confidence to our security holders, this explicit pledge makes Ginnie Mae MBS products unique and valuable investment vehicles. The guaranty means investors receive scheduled principal and interest (P&I) payments regardless of the circumstance.
During the worst economic conditions and disasters, investors in Ginnie Mae MBS have received their P&I payments on time without disruption to their scheduled delivery. The ongoing COVID-19 pandemic is no exception. The coronavirus emergency is one of many examples in our 50 plus years where Ginnie Mae provides liquidity and stability into the U.S. housing finance sector amidst crisis. Despite the hardship experienced here at home and abroad, global investors continue to invest in Ginnie Mae MBS with confidence that all scheduled payments will be made on time and in full.
Declining Treasury rates in the broader fixed income space have led to increased demand for Ginnie Mae MBS with comparatively higher yields versus other sovereign debt. Moreover, international demand for Ginnie Mae MBS has been particularly strong for those global investors seeking to place their capital outside of bonds with lower rates in local and regional bond markets. Accordingly, those investors who successfully manage interest rate and prepayment risks can obtain a yield premium over similar duration U.S. Treasury notes.
Investment demand for Ginnie Mae MBS hasn’t slowed since the 2008-2009 financial crisis, when production of new securities and associated investor demand for Ginnie Mae MBS grew from $400 billion outstanding to more than $2 trillion in ten years. Most recently, in May 2020, Ginnie Mae MBS production reached $63.44 billion in issuance and $2.149 trillion in total outstanding principal balance. This continued level of investment helped an additional 235,000 borrowers obtain affordable housing credit. Such accomplishments come from the close work of Ginnie Mae stakeholders involved throughout the MBS and multiclass securities programs.
Ginnie Mae collaborates with partners and stakeholders working with market participants to address liquidity concerns and advance payments. The Pass-Through Assistance Program (PTAP), implemented in response to the COVID-19 National Emergency, has minimized disruptions for mortgage servicers during the coronavirus emergency. The PTAP has also mitigated risks for the U.S. taxpayer, another key component of Ginnie Mae’s role as the guarantor of last resort, by helping to prevent disruption to the mortgage servicing market while implementing various policies aimed at helping borrowers experiencing financial distress.
Another key component of Ginnie Mae operations is to engage with global investors. We conduct robust engagements with institutional investors to raise awareness, answer questions and obtain feedback on Ginnie Mae’s securities programs. In these engagements with investors spanning relevant capital markets actors, we share global market analysis insights and trends on U.S. housing finance markets in a variety of media, including: teleconferences, monthly reports and policy updates. These engagements also solicit input and feedback from investors about Ginnie Mae’s programs. As a result, our investor engagements facilitate valuable input on market perspectives that contribute to decision-making as Ginnie Mae consistently strives for the best in the evaluation of the securities programs and their operations.
Our $2.1 trillion portfolio of MBS principal balance outstanding demonstrates the worldwide trust investors and policymakers place in Ginnie Mae and its products. Our staff of about 150 people is highly skilled with deep knowledge and strong ties to the industry. As such, we are committed to the best in both business and government administration. Our longstanding experience and expertise will ensure we continue to channel investment into the U.S. housing finance system and minimize risks for the U.S. taxpayer—no matter the challenge.
|Ginnie Mae’s Steps to Stabilize the Housing Market During the COVID-19 National Emergency|
|by Eric Blankenstein | 6/9/2020|
The COVID-19 National Emergency, and the necessary public health responses to it, have taken a tremendous toll on our nation’s economy. Ginnie Mae has taken several steps in recent weeks to help counteract this and maintain stability and liquidity in the government insured mortgage-backed securities (MBS) market. These steps have enabled Issuers and mortgage servicers to provide the financial flexibility that millions of homeowners and renters needed, while maintaining broad-based market confidence.
The enhancement of the Pass-Through Assistance Program (PTAP), announced in early April received the most attention from the industry. This enhanced program, known as PTAP/C19 provides a financial facility for Issuers that are experiencing a temporary liquidity shortfall as they manage mortgage borrower forbearance programs. In early May, Ginnie Mae broadened the program to Issuers of Multifamily MBS. Both program components are open to all qualifying Issuers and are designed to be used when all other financial options available to Issuers have been exhausted. Unlike prior pass-through assistance programs, applying for or receiving PTAP/C19 assistance is not considered an event of default in the Ginnie Mae program. We made this change because of the severity and wide-spread economic impact of the COVID-19 National Emergency.
As Ginnie Mae moved quickly to develop the PTAP/C19 program to help mitigate both the anticipated and unknown effects of mortgage forbearance programs on Issuer liquidity, our strategy included providing regular updates on program usage. We began publishing usage and related information on our website in April.
Almost from the start of the National Emergency, many industry observers forecast tremendous strains on Issuer/servicer liquidity, especially in the non-bank sector. Thankfully, Ginnie Mae was prepared for this heightened risk. Over the past few years, we have modernized existing proprietary tools and incorporated new methods to monitor Issuer liquidity and overall financial health. At the same time, the agency is working on further enhancing its Acknowledgement Agreement to afford Issuers more financial flexibility with respect to Ginnie Mae servicing rights and required issuer advances, including innovations intended to attract new types of investors to the Ginnie Mae market.
Along with providing a liquidity facility for Issuers, Ginnie Mae took steps to ensure that reporting of delinquent loans because of forbearance would not negatively affect an Issuer’s standing with the agency, as would normally occur when delinquency levels spike. On May 14 Ginnie Mae established new guidance through APM 20-06 for Issuers reporting delinquent mortgage loans to Ginnie Mae that provides temporary relief from sanction related to the delinquency threshold requirement.
These MBS program enhancements have helped to keep the government mortgage market operating efficiently, reduce risk to taxpayers, and allow Issuers to focus on meeting the mortgage needs of their customers, all while maintaining Ginnie Mae’s commitment to its investors that scheduled principal and interest will be paid on time and in full.
As the mortgage market response to the COVID-19 National Emergency evolves, Issuers and other stakeholders can rest assured that Ginnie Mae will continue to safeguard the stability and safety in the government-insured mortgage market while minimizing risk to taxpayers.
|Securities Issuance Stays Strong and Innovations in Multiclass Products Attract New Participants|
|by Ginnie Mae | 5/26/2020|
Ginnie Mae’s investment in operational and program improvement is helping Issuers do business with Ginnie Mae and provide a wider group of investors with the products they demand, strengthening Ginnie Mae’s ability to maintain the flow of affordable mortgage capital to households in the U.S. Ginnie Mae saw record volume in MBS issuance in April, and a new investor type began using a new feature in one of the agency’s multi-class product.
Specifically, more than $63 billion of Ginnie Mae MBS were issued in April, the ninth consecutive month MBS issuance exceeded $50 billion and the second time volume was above $60 billion in a month.
Single-family mortgage rates consistently near-record-low levels since last summer and the scalability of the Ginnie Mae platform to meet market demand have helped fuel Issuance strength in the MBS business. Program innovation in the multi-class segment, particularly in the Platinum product -- which increases administrative flexibility and liquidity for investors holding small dollar sized Ginnie Mae MBS -- has driven issuance in that product.
Platinum securities volume reached $6.6 billion in April via 30 transactions, up from $4.4 billion and 40 transactions in March. Ginnie Mae’s Office of Capital Markets continues to innovate within its program and work to bring in new types of investors to the Platinum program.
April saw strong issuance of $1.6 billion in the Ginnie Mae Jumbo Only Fixed Platinum option. This option allows Platinum users to bundle Jumbo Fixed pools together and get a pool type assigned reflecting the Jumbo nature of collateral. Having the proper Jumbo pool-type assigned to the security facilitates applying the most accurate prepayment model to the security, enabling better pricing.
April also saw the first HMBS Platinum transactions with adjustable-rate mortgage collateral. Typically, HMBS ARMs are securitized through REMIC transactions, but the new Platinum program innovation now offers another option for investors.
Ginnie Mae REMICS, another multi-class product, also reported strong April volume. Seventeen REMIC transactions were settled in the month for $7.1 billion, compared to 18 deals for $9.8 billion in March.
Overall, the trend in Ginnie Mae securities is positive, illustrating the agency’s strong commitment to meeting the needs of Issuers, investors, and to the ultimate benefit of the homeowners and renters who rely on a steady supply of mortgage capital.
|Ginnie Mae addresses servicer liquidity issues|
|by Seth D. Appleton | 3/27/2020|
I wanted to communicate about Ginnie Mae’s efforts to address any servicer liquidity issues that might result from the COVID-19 emergency.
Under the Ginnie Mae MBS program, the approved issuers who service mortgage-backed securities (MBS) are required to remit scheduled principal and interest (P&I) to investors, and make various other payments in connection with mortgage loans, even when monthly payments are not received from borrowers. Indeed, the cornerstone of our MBS Guaranty program has been and will always be that the investors who support access to affordable mortgage credit for the U.S. Department of Housing and Urban Development (HUD), the U.S. Department of Agriculture (USDA), and the U.S. Department of Veterans Affairs (VA) borrowers by purchasing Ginnie Mae securities will receive payments of principal and interest on time and in full.
We have heard from our issuer and servicing partners that borrower forbearance arrangements that are nationwide in scope could place an enormous strain on issuers. This strain would be caused by the immediate need to advance required pass-through payments to investors, or other entities entitled to receive payments, and the later reimbursement of those advances by borrowers or the agencies who insure the loans (HUD, VA and USDA under the Ginnie Mae program).
Please know that we are taking action to address these concerns and potential liquidity challenges faced by Ginnie Mae issuers. Ginnie Mae has the authority to make changes to the requirements of our program, and we are using those powers to tailor the existing disaster pass-through assistance programs to more suitably scale to the needs of this National Emergency.
Ginnie Mae fully anticipates implementing within the next two weeks, via an All Participants Memorandum (APM), a Pass-Through Assistance Program (PTAP) through which issuers with a P&I shortfall may request that Ginnie Mae advance the difference between available funds and the scheduled payment to investors. This PTAP will be effective immediately upon publication of the APM for Single Family program issuers, with corresponding changes made to Ginnie Mae’s MBS Guide in due course. We anticipate publishing PTAP terms for HMBS (reverse mortgage) and Multifamily issuers shortly thereafter.
Under current policy, the advancing of funds by Ginnie Mae to an issuer as a result of a Major Disaster declared by the President of the United States would be a considered an event of default under our program. But, because the current National Emergency is not limited in geographic scope in the way a natural disaster is, a P&I advance by Ginnie Mae through the PTAP will not be considered an event of default, though all other program requirements will continue to apply. In return for any payments advanced under the PTAP, issuers will be required to sign an agreement with Ginnie Mae and must repay the advance within a specified time period. The agreement with Ginnie Mae will provide for extension requests and specify the rate of interest that will apply to the borrowed advances.
To be perfectly clear, borrowing under the PTAP should be a “last resort” financing option to alleviate a liquidity shortage faced by any Ginnie Mae issuers. PTAP’s purpose will be to support the forbearance and loss mitigation programs of our insuring agency partners (FHA, VA and USDA) by minimizing potential disruption in the mortgage servicing market so that those federal mortgage insurance and guarantee programs can be administered efficiently and with maximum help to borrowers. Ginnie Mae will choose to make these advances only where doing so will further the program mission and the American taxpayers who stand behind it.
As noted above, these exigent changes to Ginnie Mae’s disaster pass-through program under the PTAP will allow us to continue to honor our statutory duty to ensure the timely and full payment of P&I to Ginnie investors.
I also want to relay that the implementation of the PTAP is not the only step Ginnie Mae is taking to alleviate the effects of the National Emergency. We have recently acted to facilitate electronic execution and transmission of certain pooling documents (see APM 20-01), and delayed submission requirement for audited financial statements from issuers (see APM 20-02). We are also expediting our digital collateral initiative, and in the near future Ginnie Mae expects to publish information about forbearance of sanctions for violation of liquidity and delinquency standards attributable to the COVID-19 crisis.
Nonetheless, while PTAP and these additional policy actions will not by themselves address the full range of potential stress on issuer cash flows and operations, market participants should be assured that Ginnie Mae is acting expeditiously and forcefully to support relief for American homeowners and meet its statutory responsibility to provide stability and liquidity in the secondary market for residential mortgages.