Ginnie In Brief
|Ginnie Mae Strengthens its Multi-Issuer MBS Program with New Pooling Requirements for VA Cash-out Mortgages|
|by Maren Kasper | 8/1/2019|
Today, we published an All-Participants Memorandum (APM) addressing pooling requirements for Veterans Administration (VA) refinance loans. Some of the items are necessary for the enactment of legislation, but one is a new restriction on the pooling of VA cash-out refinance loans — namely, limiting the securitization of such loans with LTV’s greater than 90% to custom securities. This APM coincides with the Federal Housing Administration’s announcement of a reduction in the allowable cash-out refinance limit in the program from 85% to 80%.
Ginnie Mae described its reason for considering restrictions on VA cash-out refinance lending in the Request for Input (RFI) published in May. The RFI articulated the concern that faster prepayment speeds for VA cash-out refinance lending were harming the market value of the Ginnie Mae II MIP securities and negatively impacting other types of loans included in the securities. The response to the RFI did not alter this point of view.
The 90% threshold reflects an attempt to balance the need to protect the security with the desire to support a broad lending benefit to veterans. The more aggressive action would have been to require that VA cash-out loans adhere to the same standard as FHA cash-outs (now 80%). Instead, Ginnie Mae chose a more limited approach.
We recognize this new restriction could have an impact on the pricing of high-LTV VA cash-out loans. However, the following points should be kept in mind:
- The new 90% threshold for veteran borrowers is still significantly higher than the threshold for non-veteran borrowers (under the FHA or Fannie Mae/Freddie Mac programs).
- Loans in excess of 90% are still eligible for inclusion in Ginnie Mae guaranteed securities, just not the GII MIP (because its vulnerability to volatile performance can affect pricing for a wide range of borrowers under the government-sponsored programs).
The development of a transparent, liquid market for cash-out loans, securitized through custom pools, is an objective that will be supported by Ginnie Mae. The other alternative paths for excluded cash-outs identified in the RFI were not strongly supported in the RFI responses and will not be pursued at this time.
Continued achievement of Ginnie Mae’s mission — to ensure housing affordability for the full spectrum of borrowers served by the federal homeownership programs — requires continual balancing of the interests of various participants and beneficiaries.
In this instance, Ginnie Mae’s determination was that the market penalty, which results from the relative propensity of VA cash-out refinances to pay off very quickly, is harmful to other borrowers financed via the GII MIP and that bringing the allowable LTV threshold closer to that which prevails in most other segments of the industry is the fairest approach to the problem.
Ginnie Mae continues to collaborate closely with the VA on this topic and stands ready to adjust its program requirements as warranted by VA’s continued work on the issue or by other developments.
|Send Us Your Input on Proposed Changes to Certain Loan Eligibility Parameters|
|by Maren Kasper | 5/7/2019|
Over the past 18 months, we’ve taken a number of steps to combat lending practices that harm the market predictability of Ginnie Mae mortgage-backed securities (MBS) and increase the cost to borrowers financed by the government mortgage programs Ginnie Mae supports. Loan-level data analysis and input provided by investors directly and clearly indicates that the Ginnie Mae II Multi-issuer Program (GII MIP) securities, backed by selected Veterans Affairs (VA) mortgages, are susceptible to refinance activities out of proportion to what should be expected from prevailing interest rates. In addition to their effect on Ginnie Mae MBS, such refinancing practices can negatively impact borrowers’ financial situations.
Deterioration in the pricing of our GII MIP securities translates directly into a higher cost of homeownership for the homeowners the Ginnie Mae MBS program is intended to serve, including all VA, FHA and USDA borrowers. Therefore, it’s vital we take the steps necessary to protect the value of the Ginnie Mae security. Doing so will ensure the lowest possible rates for all borrowers in the program and protect VA borrowers from excessively high borrowing costs.
As part of this effort, we’re evaluating whether to exclude or restrict certain categories of loans that have shown the tendency to pay off faster than loans originated under more restrictive FHA, Fannie Mae or Freddie Mac loan-to-value (LTV) policies. For example, we’re taking a targeted look at VA cash-out refinances in excess of 90%. To support our evaluation, we’ve issued a request for input to solicit thoughts from stakeholders about the impacts of potential changes.
We know placing restrictions on any loan category has implications for borrowers, our Issuers and, ultimately, investors in our security. Because of this, we’re seeking guidance, which we will review carefully.
The RFI seeks insight into:
- The acceptability of pooling mortgages by different loan categories based on varying expected prepayment performance.
- Whether the threshold for our contemplated restriction should be set at a 90% LTV.
- What the impact of high LTV VA cash-out refinances is on the pricing of GII MIP.
- Alternative paths for the securitization of loan categories that we want to restrict from the GII MIP.
Ginnie Mae has the authority to implement requirements for acceptable loan characteristics on mortgages issued into our securities if we believe doing so is essential to the overall effectiveness of the MBS program. We’re committed to using in-depth analysis and evaluation to make educated decisions that will help protect the price of the security. Maintaining the value of Ginnie Mae securities in the market is the surest way for us to help keep mortgage rates low for American homeowners.
Read the request for information.
Respond to the request by emailing email@example.com no later than 3 pm Eastern Time on May 31, 2019. Responses will be kept confidential and will not be made available to the public.
|What You Can Expect at the 2019 Ginnie Mae Summit|
|by Maren Kasper | 4/9/2019|
The 2019 Ginnie Mae Summit, scheduled for June 13-14, is your chance to meet and network with members of the mortgage finance industry. It is a unique opportunity for issuers, lenders, investors and policymakers to convene in the same room and discuss topics ranging from counterparty risk to platform modernization. In the above video, Ginnie Mae’s Acting President and EVP Maren Kasper discusses the reasons why this event is one that members of the mortgage finance industry will not want to miss.
Registration and hotel accommodations are filling up fast, so be sure to book soon: https://bit.ly/2K1hL2r
|How Our Work Protecting the Ginnie Mae Security Helps Expand Homeownership|
|by Maren Kasper | 3/21/2019|
Every time Ginnie Mae takes a step to strengthen the value, performance and desirability of our security, we have one goal in mind: expanding homeownership in America. It’s at the heart of our mission and what we were created to do.
Protecting the Ginnie Mae security ensures liquidity in the market, accessibility for borrowers and stability for investors.
Expanding global market awareness and overseas demand for Ginnie Mae mortgage-backed securities is one way we are increasing liquidity. That helps lower costs and expand opportunity for low- and moderate-income borrowers. Ensuring investors have confidence in the Ginnie Mae security is paramount to the functioning of the U.S. system of housing finance in which we play such an important role. In doing so, we’re able to increase global capital flows in support of the U.S. housing market. At the end of February, foreign investors held almost 24 percent of Ginnie Mae MBS.
To understand why protecting our security is so critically important to Ginnie Mae and our mission, we point to the reasons the U.S. Congress established our agency in 1968. Congress chartered Ginnie Mae to perform five primary functions:
- Provide stability in the secondary market for residential mortgages;
- Respond appropriately to the private capital market;
- Provide ongoing assistance to the secondary market for residential mortgages by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing;
- Promote access to mortgage credit throughout the nation; and
- Manage and liquidate federally owned mortgage portfolios while minimizing adverse effects on the residential mortgage market and loss to the government.
In other words, responding to concerns about security protection is not just a top priority for us. It’s our statutory obligation as we continue to innovate new solutions to minimize risk for participants in the secondary market.
Ginnie Mae is committed to eliminating the problem of prepayment speeds that evidence material deviations from market norms and without reasonable connection to economic fundamentals. We are working with issuers to highlight responsible lending practices that will not only have a positive impact on the borrowers they serve, but also protect our security — which helps the entire housing-finance ecosystem.
The Ginnie Mae program has enjoyed 50 years of success despite significant changes in the market for mortgage finance. This success has been achieved with the support of market participants cognizant of the need for Ginnie Mae to evolve its approach to changed circumstances. The advent of continuous monitoring of prepayment performance and the adoption of policy changes necessary to protect our security is another significant step in the development of the program. Our work is not done. We are fully committed to eradicating concerns about market instability that excessive prepayment speeds create so that investors can confidently rely on a more market-predictable security, in order to serve borrowers with safe, affordable and sustainable mortgage financing.
|A Helpful Conversation on Counterparty Risk|
|by Maren Kasper | 3/8/2019|
In late February, the Mortgage Bankers Association published a white paper entitled “The Rising Role of the Independent Mortgage Bank – Benefits and Policy Implications.” It’s a helpful addition to the ongoing dialogue around counterparty risk in the housing finance system.
At Ginnie Mae, we dedicate significant energy and focus to evolving our approach to counterparty risk management in order to safeguard the government guaranty we provide and to protect investors. The American system of housing finance is a complex ecosystem involving primary lenders, the secondary market, insurers, banks and non-banks and government agencies. It’s important to keep a robust conversation going about the evolution of our industry and the way systemic risk is affected by policy changes and industry evolution.
Particularly because it focuses on one of the most notable trends in the housing finance system – the increasing share of originations stemming from so-called non-banks – the MBA’s white paper is a helpful addition to the discussion.
Last year, we published “Ginnie Mae 2020,” which included an extensive section on our thinking about enhancing counterparty risk management. This wasn’t the first time we addressed the importance of liquidity in the post-financial crisis era, which is an especially important topic given how our service to the market has increased over time. In 2014, we also published our white paper, “An Era of Transformation.”
As the Brookings Institution points out in its February 2018 paper, “Liquidity Crises in the Mortgage Market,” the U.S. housing finance system’s vulnerability to a liquidity crisis is underappreciated. Industry participants such as the MBA weighing in on the topic of counterparty risk is important to educating key audiences and stimulating dialogue. We do not necessarily need to endorse every suggestion or even such a paper’s broader conclusions to welcome the MBA’s serious contribution to the conversation.
The MBA’s paper leans into the concept of “counterparty oversight” by Ginnie Mae and others. We welcome that important role, and view it as our responsibility to foster greater dialogue about the range of issues attendant to counterparty risk. This is one reason among many that we so look forward to the Ginnie Mae Summit, which will take place on June 13th and 14th.
Understanding how the housing finance system’s risk profile is affected by the increase in mortgage originations by non-banks is just one development, among many, that we are keeping a close eye on. That organizations such as the MBA are willing to join this conversation is an important, and welcome, development.