Today, Ginnie Mae issued an All Participants Memorandum (APM) – APM 17-06 announcing its next step in the continuing effort to address the detrimental loan churning and high prepayment speeds in its securities. “These changes, along with additional measures under consideration, are being made to ensure the continued strength and liquidity of the Ginnie Mae MBS Program,” said Michael Bright, Ginnie Mae Executive Vice President and Chief Operating Officer.
Late last year, through APM-16-05, Ginnie Mae imposed seasoning requirements for streamline refinance loans to address rapid prepayments, which were negatively impacting the performance of certain Ginnie Mae securities. Today’s announcement expands pooling restrictions to cash out refinance loans, and outlines additional measures taken to protect the Ginnie Mae security.
Effective April 1, 2018, streamline and cash out refinance loans can only be pooled into Ginnie Mae I Single Issuer Pools and Ginnie Mae II Multiple Issuer Pools if six monthly payments have been made on the underlying loan and the refinance occurs no earlier than 210 days after the first monthly payment is made on the initial loan. Any covered loans that do not meet these requirements are prohibited from being pooled into Ginnie Mae standard MBS pools.
The announcement also provides details regarding the refinanced loans that are not restricted for inclusion in Ginnie Mae I Single Issuer Pools and Ginnie Mae II Multiple Issuer Pools. To be eligible for Ginnie Mae pools, loans must meet the requirements for a fully underwritten rate term refinance loan under rules set forth by the respective federal housing program or benefit administrator.
Additionally, Ginnie Mae is actively monitoring the pooling activity of issuers to identify behavior that violates these changes. Any Issuer that does not comply with the program requirements will be subject to sanctions, in accordance with the Guaranty Agreement and the Mortgage-Backed Securities (MBS) Guide. “We will continue to work closely with the industry and all of our stakeholders to police our program,” said Bright.
Ginnie Mae is also now increasing the tracking and analysis of prepayment rates. Any issuer with pool performance that appears out of step with market peers will receive increased attention and engagement from Ginnie Mae. Furthermore, prepayment information will now be included in Ginnie Mae’s Issuer Operational Performance Profile (IOPP) scorecard, which is used to evaluate issuers against their peers.
Lastly, Ginnie Mae is reviewing standards for the definition of premium rate loans, which are prohibited for delivery into Ginnie Mae standard MBS pools.