Ginnie Mae announced the creation of a new pool type to support the securitization of modified loans with terms of up to 40 years. The currently active set of pool types is limited to 30 year repayment terms. The launch of Ginnie Mae’s new product – which will be known as Pool Type C-ET – will enable Ginnie Mae’s issuers to offer credit modifications that require a lower monthly payment than a 30-year term while the option to Securitization will retain the loans for sale on the secondary market.
“It is important that Ginnie Mae issuers have secondary market liquidity for options that our agency partners deem appropriate to assist homeowners in need,” said, ” Michael Drayne, Ginnie Maes Deputy EPP. “Since an extended term of up to 40 years can be a powerful tool for reducing monthly payment obligations with the aim of keeping home, we have started to make this security product available.”
Drayne noted that the terms and extent of use of the new type of pool were ultimately determined by the Federal Housing Administration (FHA) and the Office of Public and Indian Housing (PIH) within the Department of Housing and Urban Development (HUD), Department of Veterans Affairs (VA) and the US Department of Agriculture (USDA) for Rural Development, whose programs form the basis for the loans in Ginnie Mae pools.
Highlights of the new pool type are:
- The C-ET type pool would be a “custom” pool with a single loan and a minimum pool size of $ 25,000;
- Eligible collateral consists of modified loans from the agencies involved with original terms of more than 361 months and less than or equal to 480 months, and any changes to an included mortgage loan after it was granted must have been caused by default or reasonably foreseeable default; and
- There are no limits on the loan amount as long as the eligible collateral otherwise meets the requirements of the guidelines published by the participating agency.
“Ginnie Mae has been an integral part of cross-agency action to prevent foreclosure for homeowners in financial distress due to COVID-19,” said Alanna McCargo, HUD senior advisor to Secretary of State Marcia L. Fudge. “Last year’s challenges require meaningful solutions to keep people in their homes, which has been a priority for Secretary of State Fudge. As interest rates rise, this 40 year feature will provide more opportunities to reduce payments to help homeowners. Ginnie Mae’s move today demonstrates her 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 anticipates the new type of pool will be operational by October, although the actual issuance of pools would be subject to longer-term changes being approved by the FHA, VA, USDA, and PIH.
John Getchis, SVP for Capital Markets by Ginnie Mae, stated that the choice of custom pool design gives issuers control over the formulation of the pool to maximize market prices.
“We believe the market will find value in securities backed by these loans,” said Getchis. “We wanted to provide a pooling structure that would allow issuers to capture this value and thereby improve their ability to offer homeowners the best possible options while respecting investors’ capital. By choosing the custom pool design, which is a single-issuer MBS, market makers and institutional investors have an understanding of the pool’s contents and associated issuers – two important determinants of market value. “