The Mortgage Bankers Association (MBA) on Thursday published a proposal for Ginnie Mae to develop a new mortgage securitization product. The association said it would boost the availability of private capital liquidity sources into the market, particularly in periods of stress for the U.S. economy.
The proposal is presented by the trade group in the form of a 24-page white paper. The document includes more granular detail about the proposal, its inspirations and some questions that could emerge from readers regarding the full implications of such a product.
“MBA’s proposed Ginnie Mae Early-Buyout (EBO) securitization would expand liquidity for government servicing through all economic cycles,” according to Bob Broeksmit, MBA’s president and CEO. “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.”
The proposed product could also potentially increase the overall value of Ginnie Mae servicing. This could lead to lower costs for borrowers of loans backed by government agencies including the Federal Housing Administration (FHA), U.S. Department of Veterans Affairs (VA) and U.S. Department of Agriculture (USDA), Broeksmit said.
Such a securitization would consist of nonperforming loans backed by these entities, which would be bought out of traditional Ginnie Mae mortgage-backed securities (MBS) pools.
“Buying loans out of the pool stops the issuer’s obligation of continuing to make principal and interest payments to investors during a time they are not receiving payments from borrowers,” the MBA claims. “However, because independent mortgage banks (IMBs) do not have large balance sheets to hold nonperforming loans for an extended period, buyouts are capital intensive and can create liquidity stress.”
Such a security would add new liquidity that could allow IMBs and other MBS issuers to “better manage the liquidity challenges of participating in the Ginnie Mae program.”
Issuers can then sell the new pools of EBOs to private investors, “who would receive an accrual of the scheduled principal and interest payments when the loans resolve either through the borrower reperforming on the loan, or when the loan is foreclosed and goes to claim with FHA, VA, or the Rural Housing Service,” MBA said. The agencies’ guarantee would then repay investors any principal and accrued, missed payments.
“An EBO securitization would expand liquidity for IMBs, who account for more than 85% of Ginnie Mae issuance, ensuring they have the ability to lend to first-time and low- and moderate-income homebuyers through all economic cycles,” Broeksmit said. “Importantly, Ginnie Mae can implement this under its existing program authority and has the necessary funding and staff resources to do so.”
But there remains some potential flux on implementation if this is a product Ginnie Mae chooses to pursue. Congressional leaders have urged federal agencies to suspend any policymaking and personnel appointments between now and the inauguration of President-elect Donald Trump. Ginnie Mae is currently led by an acting president, and a potential permanent replacement has not yet been named by Trump.
Housing advocates have previously told HousingWire that “freezes” on new policies are common practice for new administrations. But since MBA contends that this product could be implemented without any legislative action or additional appropriations, it could make the prospect easier if Ginnie Mae decided to pursue it.
HousingWire reached out to Ginnie Mae for comment on the MBA proposal but did not receive an immediate response.
