The Mortgage Bankers Association (MBA) has proposed developing a new securitization product specifically for non-performing Government National Mortgage Association (Ginnie Mae) loans that would attract more private capital sources and increase liquidity for the federal program during financial downturns.
The proposed program, described as the Ginnie Mae Early-Buyout (EBO) securitization, would include non-performing loans from the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA) being bought out of traditional Ginnie Mae pools.
The MBA writes that buying loans out of the pools would stop the issuers obligations to continue making monthly principal and interest payments to investors during times they are not receiving payments from borrowers. The proposed buyout program provides a new source of liquidity to help independent mortgage banks and other issuers deal with liquidity challenges that sometimes develop.
This idea has been a topic under discussion in recent years but attracted new interest during the pandemic. According to Adam DeSanctis, vice president of communications at MBA, the problem has been that when FHA, VA or USDA borrowers miss their payments, the issuers or servicers of the Ginnie Mae loans still must advance principal and interest payments to the investors.
“This can cause liquidity issues for nonbanks — which don’t have deposits — in a widescale financial crisis,” DeSanctis wrote in an email.
Under the proposed program, the issuers could sell pools of the securities to private investors who would receive principal and interest payments when the loans are resolved either through reperformance or liquidation.
“MBA’s proposed Ginnie Mae Early-Buyout (EBO) securitization would expand liquidity for government servicing through all economic cycles,” said MBA President and CEO Bob Broeksmit. “An EBO security addresses the timing mismatch within Ginnie Mae’s program, helping to alleviate an ongoing issue that has concerned issuers and regulators alike. It also has the potential to increase the value of Ginnie Mae servicing, which could translate into lower costs for FHA, VA, and USDA borrowers.”
Broeksmit said that the securitization plan would help independent mortgage banks, which account for more than 85% of Ginnie Mae’s loans, ensuring they can lend to first-time, as well as low- to moderate-income homebuyers through all economic cycles. He maintains that Ginnie Mae can implement the program under existing program authority and has the necessary funding and staff resources to do so.
