InfoBytes Blog
Filter
Subscribe to our InfoBytes Blog weekly newsletter and other publications for news affecting the financial services industry.
Ginnie Mae issues APM on treatment of mortgage delinquency ratios for issuers
On May 14, Ginnie Mae issued APM 20-06 on the treatment of mortgage delinquency ratios for users affected by Covid-19. Under the Mortgage Backed Securities Guide, an issuer that fails to maintain delinquency rates below certain specified threshold levels may be subject to sanctions. Recognizing that Covid-19 related hardships may cause issuers to experience delinquency rates that exceed the maximum thresholds, effective immediately, Ginnie Mae will exclude any new issuer delinquencies occurring on or after April 2020 when calculating the delinquency ratios. This exclusion will automatically apply to issuers that had delinquency rates below the applicable thresholds as reflected by their April 2020 investor accounting report, reflecting March 2020 servicing data. Issuers that were not compliant with these provisions as of their April 2020 report must contact their Account Executive to determine their eligibility for this exclusion. The exemptions and delinquent loan exclusions automatically expire on December 31, 2020, unless rescinded earlier or extended by Ginnie Mae, or the end of the national emergency, whichever comes earlier.
Ginnie Mae announces changes to its Pass-Through Assistance Program in response to Covid-19
On April 10, Ginnie Mae issued APM 20-03, announcing that Ginnie Mae has revised and expanded the Issuer assistance programs in Chapter 34 of the Mortgage Backed Securities Guide (MBS Guide), including the Pass-Through Assistance Program (PTAP). PTAP/C19—the PTAP that is specifically authorized for use in response to the Covid-19 national emergency—is available for Issuers that apply for assistance through an executed request and repayment agreement, and subject to a Master Supervisory Agreement, which will govern the terms of the assistance. The PTAP funds will carry a fixed interest rate for all Issuers requesting assistance in that month, to be posted on Ginnie Mae’s website on the second business day of each month. Funds may only be used to cover shortfalls in required principal and interest payments, and may not be used for any other fees or operational costs of the servicer. In addition, Issuers may only request assistance once in any given month. While neither a request for assistance nor the provision of assistance under the program will constitute a basis for default under the Ginnie Mae Guarantee Agreement, any breach of the Master Supervisory Agreement or related Request and Repayment Agreements will constitute an event of default under the Master Supervisory Agreement and related Request and Repayment Agreements, the MBS Guide and the Guaranty Agreement. The APM provides additional information for third-party financers and issuers on topics including use of the PTAP/C19 funds and the deadline for seeking PTAP/C19 assistance.
Ginnie Mae extends audited financial statement deadline
On March 25, Ginnie Mae announced that it will extend the deadline for the submission of Annual Audited Financial Statements to April 30 for lenders with a fiscal year end of December. Ginnie Mae encourages lenders to complete their Audited Annual Financial Statements—if they are able—within 90 days of the end of the lender’s fiscal year.
FHFA updates Fannie, Freddie seller/servicer eligibility
On January 31, the FHFA proposed updated minimum financial requirements for Fannie Mae and Freddie Mac (GSEs) single-family mortgage sellers and servicers. The updates are designed to provide transparency and consistency of capital and liquidity requirements for sellers and servicers with different business models. A key improvement to the 2015 minimum financial requirements (covered by InfoBytes here), FHFA stated, is that the updated standards will establish financial requirements for servicing Ginnie Mae mortgages. FHFA further noted that the new minimum liquidity standards will only be applied to non-depository institutions—depository institutions will continue to rely on their existing regulatory standards to meet the GSEs’ capital and liquidity requirements. FHFA will accept comments on the proposal for 60 days, and anticipates finalizing the requirements in the second quarter of 2020, with an expected effective date six months after finalization.
VA consolidates and clarifies IRRRL guidance
On August 8, the Department of Veterans Affairs (VA) issued Circular 26-19-22, which consolidates and clarifies guidance related to Section 309 of the Economic Growth, Regulatory Relief, and Consumer Protection Act, Public Law No. 115-174, and updates guidance regarding loan seasoning requirements based on the “Protecting Affordable Mortgages for Veterans Act of 2019,” Public Law No. 116-33. (Covered by InfoBytes here and here.) The Circular states that a lender (broker or agent included), a servicer, or issuer of an Interest Rate Reduction Refinance Loan (IRRRL) must, among other things:
- Recoup Fees. Certify that certain fees and costs of the loan will be recouped on or before 36 months after the loan note date;
- Net Tangible Benefit. Establish that when the previous loan had a fixed interest rate (i) the new fixed interest rate is at least 0.5 percent lower, or (ii) if the new loan has an adjustable rate, that the rate is at least 2 percent lower than the previous loan. In each instance, the lower rate cannot be produced solely from discount points except in certain circumstances;
- Loan Seasoning. Follow a seasoning requirement for all VA-guaranteed loans. A loan cannot be refinanced until (i) the date on which the borrower has made at least six consecutive monthly payments on the loan being refinanced, and (ii) the date that is 210 days after the first payment due date of the loan being refinanced; and
- Disclosure. Present a comparison of the refinance loan to the original loan within two business days from the initial loan application and again at closing that includes information about the overall cost of refinance. The Circular offers a sample comparison statement in Exhibit C.
Ginnie Mae announces new VA refinance loan eligibility requirements
On August 1, Ginnie Mae issued All Participants Memorandum APM 19-05 announcing changes to the mortgage-backed securities (MBS) pooling eligibility requirements for Department of Veterans Affairs (VA) refinance loans. In order to establish requirements that positively impact the performance of Ginnie Mae securities and implement the “Protecting Affordable Mortgages for Veterans Act of 2019,” (covered by InfoBytes here) APM 19-05 announces changes applicable to all VA-guaranteed refinance loans and establishes new criteria for VA cash-out refinance loans with loan-to-value (LTV) ratios above 90 percent.
Effective with MBS guaranteed on or after August 1, a refinance loan is only eligible for Ginnie Mae securities if the date on the refinance loan is on, or after, the later of (i) “the date on which the borrower has made at least six consecutive monthly payments on the loan being refinanced”; and (ii) “the date that is 210 days after the first payment due date of the loan being refinanced.” Additionally, effective with MBS guaranteed on or after November 1, “High LTV VA Cash-Out Refinance Loans”—defined as a VA refinance loan with a LTV ratio that exceeds 90 percent at the time of origination and where the borrower converts any amount of home equity into cash—are, with certain exceptions, ineligible for Ginnie Mae I Single Issuer Pools and Ginnie Mae II Multiple Issuer Pools.
Ginnie Mae seeks feedback on plan to stress test non-bank issuers
On July 23, Ginnie Mae published a Request for Input (RFI) seeking feedback on its plan to monitor and support the sustainability of the Ginnie Mae mortgage-backed securities (MBS) market, by developing a stress test framework for its non-bank issuer base. The RFI notes that, after reviewing two approaches to the stress test framework, Ginnie Mae elected to adopt a framework that forecasts an issuer’s financial performance over the next eight quarters under a base and adverse scenario. The framework would provide the following outputs: (i) a balance sheet, income statement and cashflow statement; (ii) a “Projected Issuer Risk Grade” (Ginnie Mae’s proprietary risk rating method); (iii) projected issuer compliance with Ginnie Mae and Government Sponsored Enterprise net worth, liquidity and capitalization requirements; (iv) projected compliance with common warehouse covenants; and (v) projected risk of insolvency. The RFI provides significant details on the framework, including details regarding the various structural components that will form its basis. The RFI lists four specific topics that responders may provide input on and requests that responders expand on the topics as appropriate to address related questions or implications. Comments must be submitted by August 31.
Ginnie Mae VA loan eligibility requirements amended
On July 25, President Trump signed the “Protecting Affordable Mortgages for Veterans Act of 2019,” Public Law No. 116-33, which amends the National Housing Act to revise Ginnie Mae loan seasoning requirements for Department of Veterans Affairs (VA) housing loans. Section 306(g)(1) now requires that, in order to be eligible for Ginnie Mae securities, the date of the VA refinance loan must be the later of (i) “the date on which the borrower has made at least six consecutive monthly payments on the loan being refinanced; and” (ii) “the date that is 210 days after the first payment due date of the loan being refinanced.” The amendment is effective immediately.
Ginnie Mae seeks feedback on changing standards for VA loan securitization
On May 3, Ginnie Mae published a Request for Input (RFI) soliciting feedback on potential changes to the parameters governing loan eligibility for pooling into its mortgage-backed securities (MBS). As previously covered by InfoBytes, in May 2018, Ginnie Mae announced changes to pooling eligibility requirements for Department of Veterans Affairs (VA) loans “to address abnormal prepayment patterns in some mortgages pooled in Ginnie Mae MBS that negatively affect MBS pricing, to the detriment of home mortgage loan affordability.” In the RFI, Ginnie Mae notes its focus on adverse trends in the trading of some Ginnie Mae MBS relative to securities issued by Fannie Mae, and cites published commentary and analysis that its MBS are “believed to be susceptible to refinance activity out of proportion to what should be expected from prevailing economic conditions.” The RFI now seeks feedback on, among other things, the propensity of high-LTV VA cash-out refinances to prepay in comparison with those of other loan type categories, any related impact on MBS pricing, and whether a loan-to-value ceiling of 90 percent for cash-out refinance loans “is an appropriate threshold for identifying the loan type category that would be subject to an alternative securitization path.” Ginnie Mae is considering such an alternative securitization path to provide liquidity for excluded (or restricted) loan type categories, highlighting (i) single-issuer custom securities; (ii) securities that are restricted based on a de minimis standard; and (iii) shorter duration loan types as logical possibilities. Comments on the RFI must be received by May 22.
Senator Crapo unveils plan for housing finance reform
On February 1, Chairman of the Senate Banking, Housing, and Urban Affairs Committee, Mike Crapo (R-ID) released an outline for a sweeping legislative overhaul of the U.S. housing finance system. Most notably, the plan would end the Fannie Mae and Freddie Mac (GSEs) conservatorships, making the GSEs private guarantors while also allowing other nonbank private guarantors to enter the market. Highlights of the proposal include:
- Guarantors. The GSEs would be private companies, competing against other nonbanks for mortgages, subject to a percentage cap. The multifamily arms of the GSEs would be sold and operated as independent guarantors. Consistent with current GSE policy, the eligible mortgages would, among other things, be subject to loan limits set by FHFA and would be required to have an LTV of no more than 80 percent unless the borrower obtains private mortgage insurance.
- Regulation of Guarantors. FHFA, structured as a bi-partisan board of directors, would charter, regulate, and supervise all private guarantors, including the former GSEs. FHFA would be required to create prudential standards that include (i) leverage requirements; (ii) if appropriate, risk-based capital requirements; (iii) liquidity requirements; (iv) overall risk management requirements; (v) resolution plan requirements; (vi) concentration limits; and (vii) stress tests. Guarantors would be allowed to fail.
- Ginnie Mae. Ginnie Mae would operate the mortgage securitization platform and a mortgage insurance fund. Additionally, Ginnie Mae would provide a catastrophic government guarantee to cover tail-end risk, backed by the full-faith and credit of the U.S.
- Transition. In addition to a cap on the percent of all outstanding eligible mortgages, the legislation would require guarantors to be fully capitalized within an unspecified number of years after enactment.
- Affordable housing. Current housing goals and duty-to-serve requirements would be eliminated and replaced with a “Market Access Fund,” which is intended to address the homeownership and rental needs of underserved and low-income communities.
As previously covered by InfoBytes, on January 29, Chairman Crapo released the Senate Banking Committee’s agenda, which also prioritizes housing finance reform.