New restrictions from Ginnie Mae went into effect Wednesday. The temporary measures limit issuers' options to buy out loans from pools after they've been delinquent for 90 days and later repool them if they reperform.
The restrictions will apply to the repooling of certain mortgages that went into forbearance starting in March, when the coronavirus first spread. Only loans that have been delinquent for 90 days and were bought out of an existing Ginnie Mae mortgage-backed securities pool on or after July 1 are impacted by the new rules.
After the borrower has made six consecutive monthly payments and 210 days have passed since the last delinquent payment, the loans can be put into a new custom pool subtype called "C RG."
"There could be value in the 'C RG' custom pools if many are made," Scott Buchta, head of fixed-income strategy at Brean Capital, said in a report.
Nearly 12% of loans in Ginnie Mae securitizations have gone into forbearance, according to estimates by the Mortgage Bankers Association.
Ginnie implemented the restrictions out of concern that there was "buyout activity that could undermine the integrity of the MBS program," Seth Appleton, principal executive vice president, said in a recent blog.
The government agency is specifically concerned about instances where "resolution of a delinquency is known to come from an agency insurance or guaranty payment that does not require a buyout — but where a buyout is executed anyway solely to allow the issuer to capture premium security pricing," Appleton said.
"Ideally, Ginnie Mae would prohibit only those types of buyouts. But in practice, it is impossible to identify those types of buyouts as they happen," he added.
