Ginnie Mae [1] has announced the creation of a new pool type to support the securitization of modified loans with terms up to 40 years. The currently active set of pool types is limited to 30-year loan terms. The introduction of the new product by Ginnie Mae—which will be known as Pool Type C-ET—will allow Ginnie Mae issuers to offer loan modifications that carry a lower monthly payment than would a 30-year term, while retaining the ability to securitize the loans for sale into the secondary market.
“It’s important that Ginnie Mae issuers have secondary market liquidity for options that our agency partners determine are appropriate for supporting homeowners in distress,” said Michael Drayne [2], Ginnie Mae’s Acting EVP. “Because an extended term up to 40 years can be a powerful tool in reducing monthly payment obligations with the goal of home retention, we have begun work to make this security product available.“
Drayne noted that the terms and extent of use of the new pool type would ultimately be determined by the Federal Housing Administration (FHA) and Office of Public and Indian Housing (PIH) within the Department of Housing and Urban Development (HUD), Department of Veterans Affairs (VA), and U.S. Department of Agriculture (USDA) Rural Development, whose programs are the basis for the loans in Ginnie Mae pools.
Highlights of the new pool type are as follows:
- Pool of type C-ET would be a “Custom” pool, having a single loan and $25,000 minimum pool size;
- Eligible collateral will consist of participating agency modified loans whose original terms are greater than 361 months and less than or equal to 480 months, and all modifications of an included mortgage loan after its origination must have been occasioned by default or reasonably foreseeable default; and
- There will not be any restrictions on loan amount, so long as the eligible collateral otherwise meets the requirements as set forth in guidance published by the participating agency.
“Ginnie Mae has been integral to the interagency actions to prevent foreclosure for homeowners experiencing financial hardship as a result of COVID-19,” said Alanna McCargo, HUD Senior Advisor to Secretary Marcia L. Fudge. “The challenges of the last year require meaningful solutions to help keep people in their homes, which has been a priority for Secretary Fudge. As interest rates rise, this 40-year feature will enable more payment reduction options to help homeowners. Today’s step by Ginnie Mae demonstrates a commitment to a more balanced and equitable housing finance system and demonstrates the critical role the agency plays in supporting government mortgage programs in the secondary market.”
Ginnie Mae expects that the new pool type will be ready for use by October, although actual issuance of pools would be dependent on authorization of extended term modifications by FHA, VA, USDA and PIH.
John Getchis [3], Ginnie Mae’s SVP for Capital Markets, explained the choice of the Custom pool design allows issuers control in formulation of the pool to maximize market pricing.
“We think the market will find value in securities backed by these loans,” Getchis said. “We wanted to provide a pooling structure that would enable issuers to capture that value, thereby enhancing their ability to provide the strongest possible options to the homeowners while remaining respectful of investors’ capital. By selecting the Custom pool design, which is a single-issuer MBS, market-makers and institutional investors will have knowledge of the pool contents and related issuer–two important determinants of market value.”