Ginnie Mae has announced a new rule regarding buyouts of delinquent loans. Servicers may now buy out loans at the end of a successful trial payment plan, instead of waiting until a borrower has missed three payments.
This new rule follows recently released Federal Housing Administration (FHA) guidelines requiring most loans to undergo a three- to four-month trial payment plan before a loan modification is made permanent. The new FHA guidelines go into effect October 1.
Previously, servicers could buy delinquent loans, modify them, and return them to Ginnie Mae immediately.
The new rule requires the successful completion of a trial period before the loan can be returned to a Ginnie Mae pool.
If a trial period is not successful, the issuer must wait until the loan has been delinquent 90 days or more before purchasing the loan.
If the trial period required by the loan's insurer is successful and a permanent modification is performed, the loan may be re-pooled.
As long as the loan remains in a Ginnie Mae pool, the servicer is responsible for the full principal and interest due the MBS shareholders. The servicer must advance the three missed payments before buying the loan out of the pool.
When a loan enters foreclosure, the principal amount is later reimbursed by FHA, but the interest payments are absorbed by the servicer.
Under the new rule, the trial period helps mitigate these losses for the servicer because the servicer receives partial payments rather than no payment.