The Mortgage Bankers Association (MBA) recently announced a proposal to develop a Ginnie Mae securitization to attract more private capital sources of liquidity in the event of a severe economic downturn or other market stress.
“MBA’s proposed Ginnie Mae Early-Buyout (EBO) securitization would expand liquidity for government servicing through all economic cycles,” MBA President and CEO Bob Broeksmit, said. “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 (Federal Housing Administration), VA (Veterans Affairs), and USDA (U.S. Department of Agriculture ) borrowers.”
Under the proposal, issuers would be able to stop Ginnie Mae advancing obligations by pooling nonperforming FHA, VA and USDA loans into EBO securities that can be sold to investors. Once loans are purchased out of the pool, issuers no longer need to make principal and interest payments to investors.
In addition, the EBO security provides a source of liquidity to help independent mortgage banks and other issuers that do not have large balance sheets and cannot hold nonperforming loans for an extended period.