Ginnie Primer for MLOs; Freddie and Fannie Deals Continue, Transferring Risk
"Why is it that when the CDC warns us to not eat romaine lettuce, we take it as gospel. But when the CDC tells us that vaccines save lives, we think they’re part of the Illuminati?” Good question. Another good question is, “Is affordable housing going away?” There is a lack of affordable housing available for many first-time or middle-class homebuyers in certain areas. And gaps are widening. For example, the share of single-family homes valued at a million dollars or above “has grown 7.6% over the past year alone, and doubled since 2012, increasing from 1.5% to 3.6% of all homes on the market.” Just as the wealth gap widens, luxury or high-priced housing is generally isolated to the coasts. Interestingly, Suburban Boston is the only neighborhood in the top 10 not in California. Housing trends and migration trends might influence a lender’s business (or product choices). The fastest growing states for millennials are closely correlated to states with increasing home values – Nevada, Utah, North Carolina, and Idaho.
Ginnie Primer
Want to work at Ginnie Mae (Government National Mortgage Association)? As noted above, here you go. The 50-year old agency only has a couple hundred or so employees to monitor Ginnie Mae's $2 trillion mortgage-backed securities (MBS) portfolio. That $2 trillion is up from $1 trillion eight years ago. Has the number of FTEs doubled? No.
Most folks know Michael Bright, Ginnie Mae’s EVP and Chief Operating Officer. And most know that Ginnie Mae, unlike its distant cousins Freddie and Fannie, is the primary funding mechanism for all government insured and government-guaranteed mortgage loans. It is the only federal agency tasked with the administration and oversight of an explicit, paid-for, full-faith-and-credit guaranty on mortgage-backed securities (MBS). Ginnie likes to say that its MBS are one of the most reliable fixed-income securities in the world, and that it is proceeding with its modernization: "Ginnie Mae 2020."
Loan officers, besides knowing that Ginnie sees most of the FHA, VA, Public and Indian Housing, and Rural Development/USDA loans out there, should know that Ginnie ensures the timely payment of principal and interest to security holders – and that issuers have to come up with money for delinquent loans. And thus, unlike F&F that are under government conservatorship, Ginnie's business model significantly limits risks to taxpayers by providing a safe, effective and government-backed channel for the flow of capital for U.S. mortgages from around the world. Ginnie has never missed a payment - even during the financial crisis - and returns money to the U.S. Treasury every year.
Last month we learned that roughly $36 billion of Ginnie Mae MBS was issued in September. September issuance is comprised of $34.58 billion of Ginnie Mae II MBS, and $1.17 billion of Ginnie Mae I MBS, of which $1.03 billion is backed by multifamily mortgages. Total MBS issuance for fiscal year 2018 was $434.7 billion.
But wait – there’s more! This week Ginnie Mae announced that issuance of its mortgage-backed securities (MBS) totaled $34.370 billion in October: $32 billion of Ginnie Mae II MBS and more than $1 billion of Ginnie Mae I MBS, which includes $1.290 billion of loans for multifamily housing. Ginnie Mae's total outstanding principal balance of $2.019 trillion is an increase from $1.894 trillion in October 2017.
Ginnie is very concerned about this concentration. Advances must be made by issuer, which is a concern. Ginnie Mae issued a memo about servicer quality and may ask for agreements that a servicer has with the issuer because many non-banks use subservicers and become dependent on subservicers’ financial stability.
Ginnie Mae sent a “liquidity letter” to its 14 largest issuer/servicers in late October, telling them to come up with contingency plans as the profitability picture worsens. The management teams of these 14 shops will be sitting down with Ginnie officials in early January to discuss the matter further. Ginnie also issued an all-participants memo, dictating new standards for firms seeking to become issuers, including the stipulation that applicants submit to a corporate credit evaluation similar to what the rating agencies put them through.
In recent years having your Ginnie approval was worthwhile, although time-consuming. Ginnie warned lenders that they should actually use it, and not just want approval just to post on their lobby wall and use it to recruit LOs. Many small and mid-sized servicers are concerned over the impact of funding advances on Ginnie MSRs now that refinances have gone away. This concern resides with Ginnie as well. While advance financing has improved for some, it has not for most. Combine this with lower volume, low margin originations and it’s time to sell this asset.”
FHA announced revised requirements for Home Equity Conversion Mortgage (HECM) servicers when they assign FHA-insured reverse mortgages to the agency for claim payment. Effective immediately, FHA-approved HECM servicers can use alternative supporting documentation in lieu of previously required materials that, in many instances, delayed claim processing. Read FHA’s Mortgagee Letter. FHA Commissioner Brian Montgomery said, “Streamlining the HECM claim payment process makes us more responsive to participating lenders and helps continue our effort to put the program on a more financially viable path.”
At the beginning of November, it was reported Ginnie Mae Platinum issuance volume surged in FY18 with more than $20 billion of securities formed, after issuance volume was $7.8 billion in 2017. The larger output comes as more sponsors are taking advantage of the improved automated process available through the MyGinnieMae portal, which enables participation from smaller firms with limited staff and large portfolio managers. The portal is becoming a one-stop, full-service solution for accessing Ginnie Mae business applications, and is just one component of the technology modernization program underway at Ginnie Mae. Supporting the operational aspect of multi-class Platinum Securities is another way for Ginnie Mae to increase liquidity and price stability for Ginnie Mae MBS and the government mortgage loan market that helps to ensure the lowest possible mortgage rates for homeowners across the country.
Platinum Securities allow investors to combine Ginnie Mae MBS pools with uniform mortgage interest rates and original terms to maturity into a single security, backed by the full faith and credit of the United States government. Investors then receive a single payment from the combined securities every month, rather than separate payments from each individual security. Platinum Securities can be used in structured finance transactions, repurchase transactions and general trading.
Ginnie Mae published a new All Participants Memorandum (APM 18-07) aimed at strengthening the stability and integrity of the mortgage-backed securities market. It outlines steps the agency will take to evaluate the credit strength of new Issuers, implements new notification requirements for issuers engaged in certain subservicer advance or servicing income agreements, and codifies Ginnie Mae's ability to impose additional financial or operational requirements on program participants when warranted by market conditions.
Fueled by a new user-friendly online process to create Ginnie Mae Platinum Securities and additional product offerings to the program, Platinum issuance surged above $20 billion in FY 18. The larger output comes as more sponsors are taking advantage of the improved automated process available through the MyGinnieMae portal, which enables participation from smaller firms with limited staff and large portfolio managers. MyGinnieMae is a single, secure gateway to all approved Ginnie Mae applications via a dedicated entry point. The portal is becoming a one-stop, full-service solution for accessing Ginnie Mae business applications, and is just one component of the technology modernization program underway at Ginnie Mae. Details of the modernization effort can be found in the Ginnie Mae 2020 white paper published earlier this year.
Ginnie Mae added the following Bulletin: "HMBS Platinum Disclosure: New Disclosure File and Layout."
On October 3, Fannie Mae announced that it completed its sixth and seventh traditional Credit Insurance Risk Transfer™ (CIRT™) transactions of 2018 covering $9 billion of existing loans in the company’s portfolio (CIRT 2018-6 and CIRT 2018-7). CIRT transactions are a part of Fannie Mae’s ongoing effort to reduce taxpayer risk by increasing the role of private capital in the mortgage market. To date, Fannie Mae has acquired about $7.3 billion of insurance coverage on $291 billion of loans through the CIRT program. The most recent transactions transferred $271 million of risk to fourteen reinsurers and insurers. In CIRT 2018-6, Fannie Mae will retain risk for the first 60 basis points of loss on a $7.9 billion pool of loans. If the $47 million retention layer is exhausted, reinsurers will cover the next 300 basis points of loss on the pool, up to a maximum coverage of approximately $237 million. With CIRT 2018-7, which also became effective August 1, 2018, Fannie Mae will retain risk for the first 60 basis points of loss on a $1.1 billion pool of loans. If this $6.8 million retention layer is exhausted, an insurer will cover the next 300 basis points of loss on the pool, up to a maximum coverage of approximately $33.9 million. Coverage for these deals is provided based upon actual losses for a term of 10 years. The covered loan pools for the two transactions consist of fixed-rate loans with loan-to-value ratios greater than 80 percent and less than or equal to 97 percent, and original terms between 21 and 30 years.
On September 13th, Fannie Mae announced its latest sale of non-performing loans, including the company’s fourteenth Community Impact Pool. Community Impact Pools are typically smaller pools of loans that are geographically-focused, and marketed to encourage participation by non-profit organizations, minority- and women-owned businesses (MWOBs), and smaller investors. The five larger pools include approximately 10,700 loans totaling $1.95 billion in UPB and the Community Impact Pool of approximately 80 loans totaling $28.7 million in UPB. The Community Impact Pool consists of loans geographically located in New York City. Bids are due on the five larger pools on October 4 and on the Community Impact Pool on October 23. Terms of Fannie Mae’s non-performing loan transactions require the buyer of the non-performing loans to pursue loss mitigation options that are sustainable for borrowers. In the event a foreclosure cannot be prevented, the owner of the loan must market the property to owner-occupants and non-profits exclusively before offering it to investors.
Also in mid-September, Fannie Mae announced the results of its eighth reperforming loan sale transaction. The deal included the sale of approximately 18,300 loans totaling $3.58 billion in UPB divided into four pools. The loan pools awarded in this most recent transaction include: Group 1 Pool: 3,091 loans with an aggregate unpaid principal balance of $487,784,941; average loan size $157,808; weighted average note rate 4.24%; weighted average broker's price opinion (BPO) loan-to-value ratio of 76%. Group 2 Pool: 4,839 loans with an aggregate unpaid principal balance of $651,451,525; average loan size $134,625; weighted average note rate 4.28%; weighted average BPO loan-to-value ratio of 69%. Group 3 Pool: 2,115 loans with an aggregate unpaid principal balance of $498,751,687; average loan size $235,816; weighted average note rate 3.42%; weighted average BPO loan-to-value ratio of 88%. Group 4 Pool: 8,277 loans with an aggregate unpaid principal balance of $1,939,030,553; average loan size $234,267; weighted average note rate 3.42%; weighted average BPO loan-to-value ratio of 89%. The cover bids, which are the second highest bids per pool, were 89.50% of UPB (54.98% of BPO) for Pool 1, 95.60% of UPB (55.30% of BPO) for Pool 2, 86.75% of UPB (68.71% of BPO) for Pool 3 and 85.77% of UPB (68.28% of BPO) for Pool 4.
On October 30, Fannie Mae announced the winning bidder for its fourteenth Community Impact Pool of non-performing loans. The transaction is expected to close on December 18 and includes approximately 66 loans totaling $22.9 million in unpaid principal balance from loans geographically focused in the New York City area. The winning bidder was VRMTG ACQ, a minority woman owned business. The loan pool awarded in this most recent transaction had an average loan size of $347,683; weighted average note rate of 5.46%; weighted average delinquency of 66 months; and weighted average broker's price opinion loan-to-value ratio of 63% weighted by UPB. The cover bid, which is the second highest bid, for the Community Impact Pool was 90.0% of UPB (48.41% of broker's price opinion).
On November 2, Freddie Mac priced approximately $862 million in K-733 Certificates, which settled earlier this month and are fixed-rate multifamily mortgages with predominantly 7-year terms. Also on November 2, Freddie priced approximately $1.1 billion in K Certificates (K-083 Certificates), which also settled.
The bond markets are open today, for a while, as are some lenders. But lock activity is minimal. At 09:45, 6:45AM PT, Markit will release its flash November purchasing manager indices for the manufacturing and services sectors – no big deal. Rates are a shade lower than Wednesday afternoon: the 10-year is down to 3.05% and agency MBS prices are a smidge higher.