New type of Ginnie Mae MBS proposed by mortgage bankers

The Mortgage Bankers Association is proposing a new type of securitization it considers a viable way to address a key concern for nonbanks who work in the Ginnie Mae market.

The group's proposal recommends creating a vehicle for early buyout pools that would give mortgage companies a new way to manage loans removed from securitized pools.

The expense related to holding these loans has been a concern for independent mortgage banks, which are increasingly dominating Ginnie's issue base, since they don't have the same kind of balance sheet resources as depositories.

This type of securitization "would expand liquidity for IMBs, who account for more than 85% of Ginnie Mae issuance," said Bob Broeksmit, the association's president and chief executive.

Early buyout securitizations would allow issuers to sell loans removed from standard pools to private investors rather than having to manage those mortgages themselves. 

The paper acknowledges several other concepts could be used to address liquidity challenges related to buyouts but suggests this one would be among the easiest to execute.

Ginnie has more limited resources than other government entities that can't act outside statutory authorities, but the EBO securitization would be viable within the confines of the agency's fiscal-year 2025 budget and wouldn't require congressional intervention, according to the MBA.

There also is a precedent for the concept. Ginnie recently approved a new vehicle for reverse-mortgage buyout relief known as HMBS 2.0 that could be a "template" for EBO securitizations in the broader market, according to the MBA's white paper.

The EBO securitization concept would still have some challenges to address, such interest-rate risks, the study acknowledged.

The proposal "is not attempting to solve for such circumstances," according to authors Matt Jones, associate vice president of government housing finance, and Sara Singhas, director of strategic industry engagement.

EBO securitizations wouldn't always be the best outlet for loans, they added.

Several other concepts could be used to address EBO liquidity issues such as the pool splitting that the Community Home Lenders of America recently advocated for as a way to address servicing transfer concerns.

Ginnie servicing trades most easily at the pool level, but buyers prefer the performing segment of the pool, so splitting could help with that.

Former Ginnie President Ted Tozer said the agency is familiar with these concepts but given its limited resources needs to be very careful about which one to pursue.

"Liquidity is really the No. 1 risk factor but really Ginnie Mae can only work on one major project at a time," he said.