New loan pool aims to provide more payment reduction options to distressed homeowners
Ginnie Mae has introduced a new pool type that will support the securitization of modified loans with terms of up to 40 years.
The agency has created a new product, called Pool Type C-ET, allowing lenders to offer loan modifications that carry a monthly payment lower than that of a 30-year term while retaining the ability to securitize the loans for sale into the secondary market. The new pool type aims to help struggling homeowners with a 30-year mortgage loan to reduce their monthly payment.
“It’s important that Ginnie Mae issuers have secondary market liquidity for options that our agency partners determine are appropriate for supporting homeowners in distress,” said Ginnie Mae acting executive vice president Michael Drayne. “Because an extended-term up to 40 years can be a powerful tool in reducing monthly payment obligations with the goal of home retention, we have begun work to make this security product available.”
Drayne noted that the terms and extent of use of the new pool type would ultimately be determined by the Federal Housing Administration (FHA) and Office of Public and Indian Housing (PIH) within the Department of Housing and Urban Development (HUD), Department of Veterans Affairs (VA), and US Department of Agriculture (USDA) Rural Development, whose programs are the basis for the loans in Ginnie Mae pools.
“Ginnie Mae has been integral to the interagency actions to prevent foreclosure for homeowners experiencing financial hardship as a result of COVID-19,” said Alanna McCargo, HUD Senior Advisor to Secretary Marcia Fudge. “The challenges of the last year require meaningful solutions to help keep people in their homes, which has been a priority for Secretary Fudge. As interest rates rise, this 40-year feature will enable more payment reduction options to help homeowners. Today’s step by Ginnie Mae demonstrates a 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.”
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John Getchis, senior vice president for capital markets at Ginnie Mae, added that the product features a custom pool design (single loan and $25,000 minimum pool size) that will enable issuers to control its formulation and maximize market pricing.
“We think the market will find value in securities backed by these loans,” Getchis said. “We wanted to provide a pooling structure that would enable issuers to capture that value, thereby enhancing their ability to provide the strongest possible options to the homeowners while remaining respectful of investors’ capital. By selecting the custom pool design, which is a single-issuer MBS, market-makers and institutional investors will have knowledge of the pool contents and related issuer – two important determinants of market value.”
Ginnie Mae expects that the new pools will be ready for use by October, but FHA, VA, USDA and PIH will still have to authorize the extended-term modifications of the pools.
