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 firstname.lastname@example.org 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.