Ginnie Mae allows lenders to securitize modified home loans with terms of up to 40 years while the Biden government works to provide more housing for troubled borrowers.
The new type of pool will allow Ginnie issuers to offer loan modifications that include a lower monthly payment than a 30 year mortgage, while retaining the ability to securitize the loans for sale in the secondary market.
Ginnie expects the new pools to be operational by October, but their longer-term changes have yet to be approved by the Federal Housing Administration and other agencies whose programs are the basis for the loans in the Ginnie Mae pools.
"It is important that Ginnie Mae issuers have secondary market liquidity for options that our agency partners deem appropriate to assist homeowners in need," said Michael Drayne, Ginnie's vice executive vice president, in a press release.
Ginnie Mae has been involved in a number of inter-agency efforts to prevent foreclosure for homeowners in financial distress due to COVID-19.
The announcement comes a day after Biden named Julia Gordon as FHA commissioner. FHA is the agency within the Department of Housing and Urban Development that traditionally supports first-time home buyers as well as minority and low-income borrowers.
"Last year's challenges require meaningful solutions to keep people in their homes," said Alanna McCargo, senior advisor to HUD Secretary Marcia Fudge. "Today's move by Ginnie Mae demonstrates a commitment to a more balanced and equitable home finance system and demonstrates the critical role the agency plays in supporting government mortgage programs in the secondary market."
Other HUD agencies that can offer the new pools are the Office of Public and Indian Housing, the Department of Veterans Affairs, and the U.S. Department of Agriculture Rural Development.
Ginnie said there will be no limits on loan amounts in the pools as long as the collateral allowed meets the requirements set out in each participating agency's guidelines. The modified loans must have a term of more than 30 years and less than or equal to 40 years. Ginnie also said that any changes to the pooled loans "must have been caused by default or [a] reasonably foreseeable default".
The 40-year pool design gives Ginnie's issuers more control and the ability to maximize market prices, said John Getchis, senior vice president of capital markets.
"We believe the market will find value in securities backed by these loans," Getchis said in a press release. "We wanted to provide a pooling structure that would allow issuers to capture this value and thereby improve their ability to offer homeowners the best possible options while respecting investors' capital."