Alarmed about continued high nonmarket-based prepayment rates, Ginnie Mae is requesting input from lenders on how to make the mortgage-backed securities it guarantees fairer to investors without hurting borrowers.
Over about the last year and a half, Ginnie tried to put rules in place for the Veterans Affairs mortgage program that would curb cash-out refinancings. In January, Ginnie restricted loanDepot’s ability to securitize VA mortgages altogether due to churning recent originations; it previously took similar action against other lenders.
Borrowers, no matter the loan type, have the ability to prepay whenever they want without penalty. Typically, they happen more when rates fall, someone moves, or refinances to take cash out when they have equity. However, the VA loan program has more flexibility around prepayments and because of that Ginnie’s dealt with unpredictable behavior in market pricing, leading to a higher cost of homeownership for the borrowers.
Ginnie’s intent is to make changes within their guidelines to ensure the highest price possible for all mortgages in their MBS pools. Given the differences compared to FHA and GSEs, the agency is evaluating excluding or restricting VA cash-out refinances from its multi-issuer pools.
“Protecting the value of our securities and, thereby, the borrowers Ginnie Mae serves, is paramount and, as such, modifications to our pooling parameters are under consideration,” Maren Kasper, Ginnie Mae’s acting president, said in a press release.
“This [request for input] enables the agency to take views from a wide variety of stakeholders under consideration as we work to eradicate abnormal prepayment patterns that are negatively impacting the performance of the Ginnie Mae MBS program.”