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Ginnie Mae, a U.S. federally owned corporation providing security and stability for financial institutions issuing and servicing mortgages, has recently announced their efforts to help reduce the financial burden for loan servicers and financial institutions amid the coronavirus outbreak.
Over the past few weeks, several lenders, including government-sponsored entities (GSEs) like Fannie Mae and Freddie Mac, have stated they will be offering nationwide forbearance plans allowing borrowers to defer or delay payments anywhere from 60 days up to a year. While these plans are undeniably helpful for borrowers, the financial institutions and non-banking servicers responsible for collecting principal and interest (P&I) payments are still expected to remit payments to bondholders and investors regardless of whether payments were collected.
Considering that the St. Louis Fed recently estimated that 47 million people will be laid off in the second quarter of 2020 and the unemployment rate could jump to 32.1% (from 3.5% Feb. 2020), the almost guaranteed number of loan defaults that are sure to come puts certain mortgage financing institutions in a serious bind.
What does Ginnie Mae do?
Currently, Ginnie Mae guarantees over $2 million in mortgage-backed securities, providing liquidity and financial injections by backing certain loans that were created by approved issuers including federal agencies like Veteran Affairs (VA), the U.S. Department of Agriculture (USDA), and the Federal Housing Authority (FHA). If a mortgage borrower with a USDA, VA, or FHA loan fails to make a payment, Ginnie Mae will intervene on behalf of the servicer or issuer, paying bondholders the missed payments.
Ginnie Mae's announcement on March 27, 2020, stated that "Ginnie Mae has the authority to make changes to the requirements of our program, and we are using those powers to tailor the existing disaster pass-through assistance programs to more suitably scale to the needs of this National Emergency."
What this means for mortgages
It's expected that within the next two weeks, Ginnie Mae, using an All Participants Memorandum (APM), will implement a Pass-Through Assistance Program (PTAP), granting P&I assistance to institutions who need it starting with single-family program issuers, followed by reverse mortgage and multifamily issuers thereafter. Their efforts will surely help with mortgage issuers' and servicers' liquidity and help keep the markets moving and operating as normal.
The brief emphasized that issuers should use this PTAP loan program as a last resort and stated that "Ginnie Mae will choose to make these advances only where doing so will further the program mission and the American taxpayers who stand behind it."
Intervention efforts by Ginnie Mae are intended to be used as supplemental assistance to the policies being issued by the Treasury and the Federal Reserve.
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