Hello, LOs!
The federal government is hoping that it can keep borrowers out of default by backing 40-year mortgages. Whether Ginnie Mae investors will be willing to buy pools of those mortgages is another thing.
Ginnie Mae announced late last Friday that it will start offering some pools of 40-year modified mortgages, starting in October. Reporter Tim Glaze has the story.
The last time the federal government tinkered with mortgage terms in a big way was in the 1920s, with the introduction of the 30-year mortgage (for some!). Before that, mortgage payments only took care of the interest, and so borrowers typically faced a balloon payment.
The Biden administration is hoping to avoid that scenario. It's looking for ways to modify loans to allow borrowers to get current while keeping payments low enough for them to stay in their homes. Without extending the term, some borrowers would see balloon payments — as they did in the days before the federal government started backing the 30-year mortgage.
Just what the terms for the new pool are will be determined by the Federal Housing Administration, the Office of Public and Indian Housing, the Department of Housing and Urban Development (HUD), the Department of Veterans Affairs (VA) and the Department of Agriculture (USDA), whose loans make up the Ginnie Mae pools.
Here is what we know about the pools so far:
This would be a "custom" pool, consisting of at minimum a single loan and $25,000. Eligible collateral will consist of modified loans whose original terms are between 30 and 40 years. The modifications can only be made to prevent a default. The loans don't have any size restrictions, other than the ones the pertinent agencies have.
As often happens in Washington, D.C., word that Ginnie Mae might adopt 40-year mortgage pools started trickling out last week, before all hell broke loose at FHFA, FHA and HUD. An interagency federal task force focused on housing issues has been holding talks with industry groups in recent weeks to seek input and gauge their reaction to policy plans.
Servicers were not, shall we say, totally thrilled with the idea of extending the mortgage term to 40 years. Now is not the time to experiment, a mortgage servicer insider told me, and it's just not clear what kind of investor appetite there will be for 40-year modified loan pools.
They hoped the federal government would reconsider. That clearly didn't work out.
"As we understand it, there is potential appetite from investors, but it depends on the pooling parameters," the person said. "Generally they have to be at market-rate, so what do the coupon levels look like? Would investors only buy them at a discount?"
Do you think offering a 40-year loan modification for borrowers in danger of default is a good idea? If not, tell me what you'd do instead. Send a note to gkromrei@housingwire.com.
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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