Ginnie Mae clarifies rule on refinancing VA mods

Ginnie Mae has issued a clarification aimed at addressing complications that arise when lenders modify mortgages and then refinance them into securitized loans that the Department of Veterans Affairs guarantees.

The new “all participant memorandum’” pertains to rules aimed at discouraging excessive refinancing of VA loans in Ginnie-insured securitizations. The VA’s interest-rate reduction refinance loans have a 210-day seasoning requirement to this end, and as lenders have processed a wave of loans modified for pandemic-related hardships, Ginnie’s interpretation of the start date for that seasoning has surprised some mortgage companies.

Some lenders who serve as securitization issuers have operated on the assumption that the origination date marks the starting point for a loan’s age, but say Ginnie has been asking them to buy mortgages out of pools based on insufficient seasoning relative to the modification date. The APM formally states that the seasoning clock restarts when the first payment under the modification takes place, according to Ginnie. The new directive has a Jan. 1, 2022 effective date to allow issuers to make operational adjustments in order to fulfill it.

“This announcement is addressing a very specific situation where you have a VA loan, the borrower goes through a modification, then there's a refinance shortly after,” said Dan Fichtler, associate vice president of housing finance policy at the Mortgage Bankers Association, in an interview, noting that, “It was not clear that the seasoning clock needed to start over at zero after a loan is modified.”

Having to remove a loan from a pool can be challenging for mortgage companies, so the Ginnie Mae rule has been important to clarify, said Mario Gomez, executive vice president and director of capital markets at LenderWorks, a national mortgage services provider.

“When an issuer or lender has to buy back a Ginnie Mae loan due to seasoning requirements, ...depending on the sophistication for the capital markets group of the issuer or lender, they could have significant exposure to interest rate risk,” he said.

Ginnie’s seasoning rules stem from two pieces of legislation, most recently the Protecting Affordable Mortgages for Veterans Act of 2019. That included some measures that addressed loan pooling issues raised by 2018’s Economic Growth, Regulatory Relief and Consumer Protection Act.