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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.
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.
On July 3, the Department of Housing and Urban Development (HUD) published in the Federal Register an interpretive rule regarding the loan-seasoning requirement for Ginnie Mae mortgage-backed securities from the Economic Growth, Regulatory Relief, and Consumer Protection Act (the Act), S.2155/ P.L. 115-174. The interpretive rule establishes that (i) any VA refinance mortgage that does not meet the requirements of the Act is not eligible to serve as collateral for Ginnie Mae mortgage-backed securities; (ii) any VA refinance mortgage that does not meet the Act’s requirements, but was guaranteed before the Act’s enactment are unaffected; and (iii) the Act does not prohibit Ginnie Mae from guaranteeing Multiclass Securities where the trust assets consist of certificates previously lawfully guaranteed with underlying VA refinance loans that may not meet the requirements of the Act. Comments on the interpretive rule must be submitted by August 2.
As previously covered by InfoBytes, Ginnie Mae issued All Participants Memorandum APM 18-04, which establishes (in accordance with the Act) that in order to be eligible for Ginnie Mae securities, the date of the VA refinance loan must be on or after the later of (i) 210 days after the date of the first payment made on the loan being refinanced; and (ii) the date of the sixth monthly payment made on the loan being refinanced.
On May 30, Ginnie Mae issued All Participants Memorandum APM 18-04 announcing changes to pooling eligibility requirements for Department of Veterans Affairs (VA) loans. The changes are in response to the “Loan Seasoning for Ginnie Mae Mortgage-Backed Securities” provision of the regulatory relief bill, Economic Growth, Regulatory Relief, and Consumer Protection Act, S.2155/ P.L. 115-174. (See previous InfoBytes coverage here.) APM 18-04 requires that, in order to be eligible for Ginnie Mae securities, the date of the VA refinance loan must be on or after the later of (i) 210 days after the date of the first payment made on the loan being refinanced; and (ii) the date of the sixth monthly payment made on the loan being refinanced. The new eligibility criteria is effective with mortgage-backed securities guaranteed on or after June 1.
Ginnie Mae also announced June 1 that it has temporarily restricted VA single family-guaranteed loans pooled by three mortgage lenders. Upon conclusion of the temporary restriction, each of the three lenders must demonstrate that (i) prepayment speeds are more consistent with equivalent lenders, and (ii) improved performance is sustainable.
As previously covered by InfoBytes, the VA recently released policy guidance in response to the regulatory relief bill, which includes a similar loan seasoning requirement as Ginnie Mae.
On April 25, the Federal Housing Finance Agency (FHFA) issued advisory bulletin AB 2018-02 to provide guidance for Federal Home Loan Banks (FHL Banks) on the use of models and methodologies when assessing mortgage asset credit risk. The advisory bulletin applies to FHL Banks that acquire Acquired Member Asset loans, mortgage-backed securities (MBS), and collateralized mortgage obligations. Exclusions from application of the guidance include certain mortgage-related assets that are guaranteed by, or operating with the capital support of, the U.S. government, including Fannie Mae and Freddie Mac. When selecting a credit risk model that is “sufficiently robust to produce meaningful loss estimates,” FHFA advises FHL Banks to consider the following when complying with regulatory requirements: (i) mortgage asset credit risk model selection; (ii) macroeconomic stress scenarios; (iii) stress scenario determinations; and (iv) credit enhancements. The guidance permits the exclusion of legacy private label MBS from application of the guidance where the stress loss estimates would be de minimis, and provides methods for determining estimated credit losses associated with securities that cannot be modeled.
The new guidance supplements general FHFA guidance on model risk management and takes effect January 1, 2019.
On March 28, the Federal Housing Finance Authority (FHFA) announced Fannie Mae and Freddie Mac (the Enterprises) will issue a new security, the Uniform Mortgage-Backed Security (UMBS), on June 3, 2019. The UMBS will replace all current offerings of mortgage-backed securities that occur in the to-be-announced (TBA) forward market. According to the announcement, the new UMBS will be issued using the Common Securitization Platform (CSP) through the Enterprises’ joint venture, Common Securitization Solutions (CSS). See previous InfoBytes coverage here.
On January 25, Ginnie Mae issued an All Participant Memorandum (APM 18-02) announcing updates to multiple chapters of their MBS Guide. According to the memo, effective immediately, Chapters 3, 5, 9, 10, and 18 now provide expanded information about acceptable risk parameters for Ginnie Mae portfolios and applicable non-compliance consequences. Specifically, Chapter 3 is updated to include examples of violations of program requirements that Ginnie Mae considers outside of acceptable risk parameters, such as:
- “Rates of delinquency that are above the thresholds published in Chapter 18(3)(C) or that otherwise pose a risk to an Issuer’s responsibility to advance P&I payments to security-holders”;
- “‘Run-off’ portfolios, or business models that involve the recurring sale of substantially all the servicing created by issuance”;
- “Heavily-concentrated portfolios”; and
- “Recurring issuance of multi-issuer program packages that exhibit prepayment activity that is substantially different from that of comparable packages.”
Chapter 3 also includes examples of non-compliance restrictions that may be imposed, including but not limited to, requiring an Issuer’s portfolio to be recalibrated to fall within acceptable risk parameters.
Other MBS Guide updates include:
- Chapter 5. Expansion on risks associated with non-compliance of MBS program requirements, such as, (i) “denial of authority to issue additional securities;” and (ii) “the imposition of civil money penalties.”
- Chapter 9. Participation in a multiple Issuer pool is considered an event of non-compliance if Ginnie Mae has restricted, in writing, the Issuer’s ability to participate.
- Chapter 10. GinnieNET must be used for paperless electronic processing of pools submitted for immediate transfer of Issuer responsibility. Ginnie Mae reserves the right to reevaluate an Issuer’s participation in the Pools Issued for Immediate Transfer (PIIT) program based on compliance with Chapter 3’s applicable risk parameters.
Chapter 18. Failure to maintain delinquency rates may result in denial of participation in multiple Issuer pools, the PIIT program, and/or the imposition of additional financial obligations.
On March 18, the U.S. District Court for the District of Columbia dismissed a lawsuit brought by a non-profit organization challenging the $13 billion global settlement agreement entered by the U.S. Department of Justice (DOJ) and a national financial services firm and banking institution arising out of the 2008 financial crisis. Better Markets, Inc. v. U.S. Dept. of Justice, No. CV 14-190 (BAH), 2015 WL 1246104 (D.D.C. Mar. 18, 2015). The plaintiff—an advocacy group founded to “promote the public interest in the financial markets”—alleged that the DOJ’s decision to enter into the 2013 settlement agreement with the firm was in violation of the Constitution, the Administrative Procedure Act, and FIRREA. The court dismissed the lawsuit on grounds that the advocacy group lacked standing, concluding that the group had failed to show “a cognizable harm, or that the relief it seeks will redress its alleged injuries.”
On February 2, a major bank agreed to a $500 million settlement to resolve years of litigation surrounding the sale of mortgage securities by Bear Stearns, which the company acquired. In re: Bear Stearns Mortgage Pass-Through Certificates Litigation, No. 1:08-cv-08093-LTS (S.D.N.Y. Feb. 2, 2015). The litigation concerned the sale of $17.58 billion in mortgage securities by Bear Stearns, and alleged that the former investment bank “misrepresented the quality of the loans in the loan pools.” Although investors did not accuse Bear Stearns of fraud, they alleged that it was strictly liable and negligent for the losses incurred, evidenced by the downgrading of most mortgage certificates from a AAA rating to below investment grade, or “junk” status. In the settlement, the New York-based institution denied any wrongdoing relating to the mortgage sales of Bear Stearns, which occurred during 2006-2007 prior to acquisition.
On February 3, the California Public Employees’ Retirement System (CalPERS) announced a $125 million settlement with a large credit rating agency and its parent company to resolve charges made in connection with the agency’s inflated ratings of three structured investment vehicle notes that collapsed during the financial crisis. The CalPERS settlement is separate from the DOJ’s settlement with the same credit rating agency. The state-operated retirement system will collect an additional $176 million from the State of California’s $210 million received from the DOJ settlement, for a total of $301 million.
- Jonice Gray Tucker to discuss “How the new administration sets the tone for 2021” at the American Conference Institute Legal, Regulatory and Compliance Forum on Fintech & Emerging Payment Systems
- Sherry-Maria Safchuk to discuss UDAAP in consumer finance at an American Bar Association webinar
- Jeffrey P. Naimon to discuss "What to expect: The new administration and regulatory changes" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Jonice Gray Tucker to discuss “The future of fair lending” at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Steven R. vonBerg to discuss "LO comp challenges" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss "Major litigation" at the Mortgage Bankers Association Legal Issues and Regulatory Compliance Conference
- Michelle L. Rogers to discuss “The False Claims Act today” at the Federal Bar Association Qui Tam Section Roundtable