Looking to address potential liquidity issues caused by the ongoing COVID-19 pandemic, Ginnie Mae has released a statement detailing a new assistance program for issuers short on funds due to the outbreak.
Ginnie Mae Principal Executive Vice President Seth D. Appleton announced on the agency’s website that the agency is set to implement a Pass-Through Assistance Program (PTAP), through which issuers with a principal and interest shortfall may request an advance from Ginnie Mae to help cover their upcoming payment to mortgage-backed securities (MBS) investors. The advance would cover the difference between the issuer’s available funds and the scheduled payment.
Ginnie “fully anticipates implementing [the new program] within the next two weeks,” said Appleton.
Such a program could be vital due to the extent of Ginnie’s role in helping provide market liquidity to federal lending programs. With Ginnie holding nearly 30% of outstanding MBS in the agency market, making sure its approved issuers can make timely payments would go a long way toward keeping investors assured of their cashflow, considering that several government agencies have offered mortgage relief via forbearance opportunities to those affected by the coronavirus crisis.
“We have heard from our issuer and servicing partners that borrower forbearance arrangements that are nationwide in scope could place an enormous strain on issuers. … Ginnie Mae has the authority to make changes to the requirements of our program, and we are using those powers to tailor the existing disaster pass-through assistance programs to more suitably scale to the needs of this National Emergency,” Appleton said.
The impact of widespread forbearance on issuer payments could be seismic. A letter to the White House co-signed last week by Mortgage Bankers Association (MBA), American Bankers Association, Housing Policy Council, National Mortgage Servicing Association and others noted the potential fallout: “[I]f 25% of the nation receives forbearance for only 3 months, servicers will have to cover payments of roughly $36 billion. If they received it for 9 months, then the cost would exceed $100 billion.”
“To be perfectly clear, borrowing under the PTAP should be a “last resort” financing option to alleviate a liquidity shortage faced by any Ginnie Mae issuers,” Appleton said. “PTAP’s purpose will be to support the forbearance and loss mitigation programs of our insuring agency partners (FHA, VA and USDA) by minimizing potential disruption in the mortgage servicing market so that those federal mortgage insurance and guarantee programs can be administered efficiently and with maximum help to borrowers.
“Ginnie Mae will choose to make these advances only where doing so will further the program mission and the American taxpayers who stand behind it.”
Robert Broeksmit, president and CEO of the MBA, was quick to applaud the move.
“MBA commends Ginnie Mae for its intention to create this program, which will allow many servicers to better help consumers affected by the coronavirus via mortgage payment forbearance,” he said.
“MBA looks forward to continuing to work with Ginnie Mae and other policymakers and stakeholders on ways to best protect consumers during this pandemic.”