The Mortgage Bankers Association (MBA) is proposing the creation of a new Ginnie Mae securitization that would bring more private capital sources of liquidity to support Ginnie Mae issuers in the event of excessive market tumult.
Under MBA’s proposal, an Early-Buyout (EBO) securitization would be comprised of non-performing Federal Housing Administration (FHA), Veterans Affairs (VA), and USDA loans bought out of traditional Ginnie Mae 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. However, because independent mortgage banks lack the large balance sheets needed to hold nonperforming loans for an extended period, buyouts are capital intensive and can create liquidity stress.
According to the MBA, the EBO security opens a new source of liquidity to help independent mortgage banks and other issuers better manage the liquidity challenges of participating in the Ginnie Mae program. The EBO security would allow the issuer to sell 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. Those agencies’ primary guarantee would repay the investors the principal and accrued missed payments, the MBA added.
MBA President and CEO Bob Broeksmit explained, “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.”
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