Ginnie Mae’s recent release of its latest Environmental, Social, and Governance (ESG) data is another step in enhancing the organization’s mortgage-backed securities (MBS) disclosure. The inclusion of this data provides Ginnie Mae MBS investors with better information to support their sustainable investing decisions, as well as attract a more diverse group of investors. With approximately $2.1 trillion in MBS outstanding, Ginnie Mae can maintain deep liquidity for its securities in order to attract the wide group of global investors.
As part of our focus on the “socially responsible” aspect of ESG investing, the new disclosure provides pool-level aggregate information on loans that are in low- and moderate-income (LMI) areas. LMI percentages of 51% and greater are eligible for Department of Housing and Urban Development (HUD) Community Block Grants. By now disclosing at the security level, the unpaid principal balance (UPB) percentage represents the aggregate of loan balances which are in a 51% or greater LMI Census Tract. Our disclosure compliments bank efforts to serve LMI Census Tract Communities by giving grants on loan fees to borrowers who are purchasing a home in a 51% or greater LMI Census Tract with an Agency Guaranteed Mortgage. The new dataset aggregates to the pool level the number of loans, percent of loans, UPB dollars and percent UPB dollars across LMI areas applicable to the pool.
Per the new data disclosure, more than 1.7 million government loans outstanding were originated in LMI areas, comprising 15.9% of the roughly 10.7 million loans. The UPB outstanding for LMI area loans is about $259 billion, representing 13.5% of the $2 trillion outstanding. Socially responsible investors could leverage this new data to better target their investment dollars into pools with higher concentrations of LMI area loans.
Pools with LMI share of 50% or greater have a lower average loan amount at $101,647 compared to $134,737 for pools with LMI share of less than 50%.
Majority LMI pools also have a much higher Federal Housing Administration (FHA) share, 87.7%, compared to 73.9% FHA share for pools that are less than 50% LMI. Conversely, the Department of Veterans Affairs (VA) share, while much smaller than FHA share on average, is lower in majority LMI pools. These findings are consistent with FHA’s mission of enabling homeownership for LMI households. Further insights can be obtained by studying credit characteristics for the two LMI buckets.
For example, pools with at least 50% LMI area UPB have slightly lower average credit scores at 674 compared to pools with a lower LMI share at 678. The average debt-to-income (DTI) ratio of 40% for majority LMI area pools is slightly higher than the 39.3% share for non-majority LMI pools. Loan-to-value (LTV) ratio for LMI-heavy pools was slightly lower, at 93.9%, compared to 94.2% for the other group. Overall, credit characteristics for majority LMI pools are slightly worse compared to those for non-majority LMI pools.
This can be a value add for investors as loans to LMI borrowers are less likely to prepay when rates fall. Even when these loans refinance, lower balances further mitigate the impact of prepayment risk on investment portfolios. The average note rate for pools with over 50% LMI share was 1% higher, at 6.1%, compared to 5.1% for pools with under 50% LMI share. This data can be sliced and diced other ways to focus on specific vintages, coupons, loan balances and other relevant attributes. Further analysis of this data can yield valuable insights for investors looking to enhance their ESG investments.
(This article was excerpted from the June Global Markets Analysis Report prepared for Ginnie Mae by State Street Global Advisors, Urban Institute and Housing Finance Policy Center.)