The Mortgage Bankers Association (MBA) today proposed the development of a new Ginnie Mae securitization designed to attract more private capital sources of liquidity to support Ginnie Mae issuers in the event of market stress or a severe economic downturn.

“MBA’s proposed Ginnie Mae Early-Buyout (EBO) securitization would expand liquidity for government servicing through all economic cycles,” said MBA President and CEO Bob Broeksmit, CMB. “An EBO security addresses the timing mismatch within Ginnie Mae’s program, helping to alleviate an ongoing issue that has concerned issuers and regulators alike. It also has the potential to increase the value of Ginnie Mae servicing, which could translate into lower costs for FHA, VA, and USDA borrowers.”

Under MBA’s proposal, an EBO securitization would be comprised of non-performing Federal Housing Administration (FHA), Veterans Affairs (VA), and USDA loans bought out of traditional Ginnie Mae pools. Buying loans out of the pool stops the issuer’s obligation of continuing to make principal and interest payments to investors during a time they are not receiving payments from borrowers. However, because independent mortgage banks (IMBs) do not have large balance sheets to hold nonperforming loans for an extended period, buyouts are capital intensive and can create liquidity stress. The EBO security provides a new source of liquidity to help IMBs and other issuers better manage the liquidity challenges of participating in the Ginnie Mae program.

The EBO security would allow the issuer to sell pools of EBOs to private investors who would receive an accrual of the scheduled principal and interest payments when the loans resolve either through the borrower reperforming on the loan, or when the loan is foreclosed and goes to claim with FHA, VA, or the Rural Housing Service. Those agencies’ primary guarantee would repay the investors the principal and accrued missed payments.

“An EBO securitization would expand liquidity for IMBs, who account for more than 85% of Ginnie Mae issuance, ensuring they have the ability to lend to first-time and low- and moderate-income homebuyers through all economic cycles,” added Broeksmit. “Importantly, Ginnie Mae can implement this under its existing program authority and has the necessary funding and staff resources to do so.”

MBA’s new white paper, Ginnie Mae EBO Securitization, introduces the proposal and describes how the inherent timing mismatch in principal and interest payment advances within the Ginnie Mae program has caused liquidity concerns and regulatory anxiety. The white paper outlines the benefits of the EBO security to issuers, investors, warehouse lenders, and consumers.

Highlights of the Proposal:

• Creation of a Ginnie Mae-Wrapped EBO Security: This new security enables issuers to stop Ginnie Mae advancing obligations by pooling non-performing loans into EBO securities. The EBO security can be sold to investors; IMB servicers do not have to hold the loans on their balance sheet for extended periods.
• Enhanced Marketplace Participation: The proposed security improves financing options within the Ginnie Mae space, encouraging investment in the program, particularly by certain warehouse lenders.
• Direct Benefits to Consumers: The strategy ultimately reduces financing costs for FHA, VA, and USDA borrowers, supporting MBA’s mission to promote affordable homeownership and sustain the housing finance system for underserved borrowers.

The white paper also contains a modeled pricing scenario and a Frequently Asked Questions section and outlines how the EBO security could complement other alternative solutions proposed to-date.