Category Archives: Investing

Ginnie Mae steps up issuer oversight

Ginnie Mae is the only secondary mortgage market player to offer an explicit government guarantee to its mortgage-backed securities.

And now, the full faith of the Federal Government is coming with an uptick in issuer oversight, according to a Ginnie Mae release from today.

Ginnie Mae is getting the word out that it is actively monitoring the pooling activity of issuers to identify behavior that violates the latest changes to issuer policies.

Any issuer that does not comply with the program requirements will be subject to sanctions, Ginnie Mae said.

Earlier this year, Ginnie Mae announced that it was launching an investigation into mortgage lenders that were aggressively targeting service members and military veterans for quick and potentially risky refinances of their mortgages.

The investigation came on the heels of a letter from Sen. Elizabeth Warren, D-Massachusetts, who cited a report from the Consumer Financial Protection Bureau, which covered complaints received from veterans about Department of Veterans Affairsmortgage refinancing.

Later, SIFMA, a prominent secondary market trade group voiced its concerns in a letter it sent to the company. In the letter, SIFMA President and CEO Kenneth Bentsen said that the group and its members support the Ginnie Mae and VA efforts to address the issue because investors have already seen the down-the-line impact on mortgage-backed securities.

Ginnie Mae is also now increasing the tracking and analysis of prepayment rates. 

“Any issuer with pool performance that appears out of step with market peers will receive increased attention and engagement from Ginnie Mae,” the statement said. “Furthermore, prepayment information will now be included in Ginnie Mae’s Issuer Operational Performance Profile (IOPP) scorecard, which is used to evaluate issuers against their peers.”

This is all part of a continuing effort to address the detrimental loan churning and high prepayment speeds Ginnie Mae found recently in its securities. 

“These changes, along with additional measures under consideration, are being made to ensure the continued strength and liquidity of the Ginnie Mae MBS Program,” said Michael Bright, Ginnie Mae CEO. 

Late last year, Ginnie Mae imposed seasoning requirements for streamline refinance loans to address rapid prepayments, which were negatively impacting the performance of certain Ginnie Mae securities. 

Today’s announcement expands pooling restrictions to cash out refinance loans, and outlines additional measures taken to protect the Ginnie Mae security. 

Here are the full details:

Effective April 1, 2018, streamline and cash out refinance loans can only be pooled into Ginnie Mae I Single Issuer Pools and Ginnie Mae II Multiple Issuer Pools if six monthly payments have been made on the underlying loan and the refinance occurs no earlier than 210 days after the first monthly payment is made on the initial loan. Any covered loans that do not meet these requirements are prohibited from being pooled into Ginnie Mae standard MBS pools. 

The announcement also provides details regarding the refinanced loans that are not restricted for inclusion in Ginnie Mae I Single Issuer Pools and Ginnie Mae II Multiple Issuer Pools. To be eligible for Ginnie Mae pools, loans must meet the requirements for a fully underwritten rate term refinance loan under rules set forth by the respective federal housing program or benefit administrator.

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Black Knight: Capital gains tax reform may further reduce housing supply

While tax reform will impact everyone who works in mortgage finance to some degree, it may also affect potential homeowners and home sellers via reform to the capital gains tax.

Capital gains is a tax that may be levied when an investor sells an asset at a notable profit — selling a home may be an example of this type of taxable transaction.

Data and analytics firm Black Knight did a deep dig into the tax reform and we’re just beginning to sift through it all now.

However, one clear finding from Black Knight is that proposed changes to the capital gains exemption on profits from the sale of a home (requiring five years of continuous residence as compared to the current two) could impact approximately 750,000 home sellers per year, also potentially increasing pressure on available inventory, the company said.

From a release on their analysis:

Leveraging the company’s SiteX property records database, Black Knight found that on average, over the past 24 months, more than 14 percent of property sales were by homeowners falling into that two-to-five-year window and who would no longer be exempt from capital gains taxation. On average, $60 billion in capital gains each year could be impacted, with a worst-case scenario (taxing the full amount under the highest tax bracket) putting the cost to home sellers at approximately $23 billion. If such homeowners choose to forego or delay selling to avoid a tax liability, this may also further reduce the supply of homes for sale.

In a market already plagued with a housing supply crunch, the Black Knight finding does not provide a silver lining.

We’ll keep keeping an eye on it.

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S&P: We expect non-QM market to double, or even triple, in size in 2018

Last week, structured finance analysts at Wells Fargo released this outlook report for private and agency mortgage-backed securities. The entire outlook can also be downloaded by following that link.

As with 2017, the Wells Fargo analysts see central bankers continuing to dominate mortgage bonds for another year.

Now SP Global Ratings is releasing its forecast and explains that, despite misrepresentations in the media, they say, the non-QM loans of today are not simply a reincarnation of non-prime or even subprime products which proliferated before the Great Recession.

In fact, the ability of these mortgages to reach homeowners otherwise unable to obtain home financing through conventional channels means the market potential is huge. 

In order to draw this conclusion, SP collected data from 6 rated non-QM deals and extracted average values of collateral and loan characteristics to understand how non-QM loans differ from pre-crisis subprime, Alternative-A (Alt-A), and prime jumbo loans.

As a result, confidence in non-QM performance will continue to grow: “We expect the non-QM market to double, or even triple, in size in 2018.  We also think that as it continues to evolve and become more liquid, securitization will become more efficient and spreads should tighten,” SP said in an email.

According to the report, the ability-to-repay (ATR) and qualified mortgage (QM) rules aim to curtail risky lending by helping lenders assess a home buyer’s ability to repay a mortgage loan and by prescribing specific loan attributes that clarify how originators can stay within the guidelines.

“While non-QM loans still need to satisfy the ATR rule, they deviate in one or more ways from the Consumer Financial Protection Bureau‘s QM guidelines, making the risk of legal liability more uncertain than with QM lending,” said global structured finance research senior director Tom Schopflocher.

“One of the important features of non-QM that distinguishes it from the historical loan types, including subprime and Alt-A, is the absence of risk layering,” Schopflocher said. 

Here’s the meat of their prediction:

Given improved underwriting, ostensible off-setting risk factors, and wide spreads, it appears as though non-QM lending should give rise to a healthy new market that provides funding for would-be borrowers who have been on the sidelines for years, having been unable to qualify for a conventional loan. 

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