Skip Ribbon Commands Skip to main content
gmlogo searchimage
bannerimage
Ginnie In Brief
 
Search
Share
* To
* From
Message
URL
https://ginniemae.gov/newsroom/GinnieInBrief/Pages/Post.aspx?PostID=30
Print Friendly
Ginnie Mae Strengthens its Multi-Issuer MBS Program with New Pooling Requirements for VA Cash-out Mortgages
by Maren Kasper | 8/1/2019

Today, we published an All-Participants Memorandum (APM) addressing pooling requirements for Veterans Administration (VA) refinance loans. Some of the items are necessary for the enactment of legislation, but one is a new restriction on the pooling of VA cash-out refinance loans — namely, limiting the securitization of such loans with LTV’s greater than 90% to custom securities. This APM coincides with the Federal Housing Administration’s announcement of a reduction in the allowable cash-out refinance limit in the program from 85% to 80%.

Ginnie Mae described its reason for considering restrictions on VA cash-out refinance lending in the Request for Input (RFI) published in May. The RFI articulated the concern that faster prepayment speeds for VA cash-out refinance lending were harming the market value of the Ginnie Mae II MIP securities and negatively impacting other types of loans included in the securities. The response to the RFI did not alter this point of view.

The 90% threshold reflects an attempt to balance the need to protect the security with the desire to support a broad lending benefit to veterans. The more aggressive action would have been to require that VA cash-out loans adhere to the same standard as FHA cash-outs (now 80%). Instead, Ginnie Mae chose a more limited approach.

We recognize this new restriction could have an impact on the pricing of high-LTV VA cash-out loans. However, the following points should be kept in mind:

  • The new 90% threshold for veteran borrowers is still significantly higher than the threshold for non-veteran borrowers (under the FHA or Fannie Mae/Freddie Mac programs).
  • Loans in excess of 90% are still eligible for inclusion in Ginnie Mae guaranteed securities, just not the GII MIP (because its vulnerability to volatile performance can affect pricing for a wide range of borrowers under the government-sponsored programs).

The development of a transparent, liquid market for cash-out loans, securitized through custom pools, is an objective that will be supported by Ginnie Mae. The other alternative paths for excluded cash-outs identified in the RFI were not strongly supported in the RFI responses and will not be pursued at this time.

Continued achievement of Ginnie Mae’s mission — to ensure housing affordability for the full spectrum of borrowers served by the federal homeownership programs — requires continual balancing of the interests of various participants and beneficiaries.

In this instance, Ginnie Mae’s determination was that the market penalty, which results from the relative propensity of VA cash-out refinances to pay off very quickly, is harmful to other borrowers financed via the GII MIP and that bringing the allowable LTV threshold closer to that which prevails in most other segments of the industry is the fairest approach to the problem.

Ginnie Mae continues to collaborate closely with the VA on this topic and stands ready to adjust its program requirements as warranted by VA’s continued work on the issue or by other developments.

Ginnie in Brief Contributors
Michael R. Bright
Ginnie Mae
Michael Drayne
Gregory A. Keith
Maren Kasper
Tamara Togans
Roy Hormuth
John F. Getchis
John T. Daugherty
Latest Posts
Deploying Robotic Process Automation at Ginnie Mae
Continuing Modernization Efforts to Best Serve Customers and Improve Efficiency
2019 Ginnie Mae Summit Opens Door for Continued Conversation
Understanding Key Points about Counterparty Policy in APM 19-06
Last Modified: 11/2/2019 1:40 AM