On January 13, Housing Wire posted an article titled “Freedom Mortgage dominates the MSR market” in which they reported that, among other top servicers, Freedom is leading the MSR marketing. They cited Recursion data on the ranking of the Ginnie Mae top servicers/buyers as well as their loan delinquency rates to provide perspective on the MSR market.

In a recent post, we discussed the market impact that arose from the imposition, and subsequent reversal, of limits on deliveries of NOO (non owner-occupied) residences, as well as on deliveries via the cash window, to the GSEs[1]. In summary, it discussed how the imposition of limits resulted in declines in the share of the NOO categories in the summer, with some rebound in evidence in Q3 when these were rescinded.

In this exercise, we look at the change in the share of purchase mortgage deliveries to both Enterprises from the same quarter in the prior year. This is done to eliminate the seasonal pattern that is in evidence in these shares that derive from the fact that owner-occupied purchases tend to have a strong seasonal pattern (peak in the spring) while the NOO categories do not. If the suspension of the constraints in September 2021 were binding, we would expect to see a jump in the share in the NOO categories in Q4. This is certainly the case for investment properties:

On June 25, 2021, Ginnie Mae announced the creation of a new pool type C-ET that consists of modified loans with original terms greater than 361 months and less than or equal to 480 months[1]. The Custom pool design implies that each pool is created by a single issuer. Other custom pools are limited to 360-month maturities, so this structure is designed to enhance liquidity for these borrowers. 7 such pools were issued in December 2021, and 1 in January 2022 so far. The 8 pools have only 13 loans, from 3 issuers. 8 out the 13 loans are Rural loans, 5 are VA.

​Once again, Ginnie Mae has provided the market with new investment opportunities, and analysts with the opportunity to learn about how markets behave under long-term timeframes.

​On January 6, Housing Wire ran an article titled “2022 opens with a big MSR bulk-sale
offering” in which they report that large volumes of sales activity at the start of 2022 point to a robust deal year ahead. They cite Recursion data on the growth in total Agency MSR transactions in 2021 compared to the previous year to provide perspective on the strong momentum in deal flow.

​Episode 10 of Ginnie Mae’s “Capital Markets Live” podcast is titled “Using Data to Understand the First-Time Home Buyer” and featured Recursion’s Founder and CEO Li Chang explaining how the company’s advanced data and tools can be leveraged to demonstrate Ginnie Mae’s important role in serving this important borrower segment. Chief Research Officer Richard Koss further discussed how fundamental factors such as a shortage of supply are supporting the housing market and how Ginnie Mae’s modification programs designed to help families stay in their homes are minimizing disruptions associated with the expiration of forbearance.

A curious policy development this year has been the stop-start approach towards the imposition of caps on the GSE’s regarding their purchases of loans backed by non-owner occupied (NOO) residences. In January the Treasury and FHFA amended the Enterprise’s Preferred Stock Purchase Agreements (PSPAs) to limit their acquisitions of single-family mortgage loans secured by second homes and investment properties to 7% of single-family acquisitions over the preceding 52-week period[1]. In September these caps were suspended[2].

Below find charts of the shares of second homes and investment properties out of all purchase mortgage deliveries to Fannie Mae and Freddie Mac, along with supporting fundamental factors.

In both cases, there was a drop in the shares in the NOO categories after the initial policy announcement this year followed by a rebound in recent months. With regards to the fundamental factors, in the case of second homes, the share of purchase mortgages rose from about 6% to 8% following the onset of the pandemic as households sought refuge from densely populated areas. According to the National Association of Realtors, more than 50% of second homes are all-cash transactions, suggesting that the equity market is more important than earned income in driving these buying decisions[3]. Of course, the data used here come from loans in Agency pools, but the performance of the equity market likely has a significant influence on buyer sentiment in this market segment.

The recent acceleration of consumer prices is likely supporting the sales of homes purchased for investment purposes, as real estate is widely seen as a hedge against inflation, in part because mortgage payments will not rise if the purchase is financed with a fixed-rate mortgage.

Once again, we have a case where optimal investment decisions are driven by detailed knowledge of a combination of policy and fundamental factors. Loan-level digital tools are essential in drilling down to the level needed to formulate successful strategies.

Recursion’s Chief Executive Officer Dr. Li Chang and Chief Research Officer Dr. Richard Koss will attend the 27th ABS East Conference in Miami from Dec 13-15, 2021.  Dr. Chang will serve as a panelist in the session entitled “ESG Hub: Applications to MBS”.  Other panelists include senior executives from Angel Oak Capital, MSCI, Selendy & Gay, PLLC and Fixed Income Investor Network (FIIN).  If you would like to schedule a meeting during the conference with Recursion executives, please contact: inquiry@recursionco.com

In a recent post[1], we discussed the various factors behind the elevated pace of prepayments in Ginnie Mae securitized pools relative to those in conventional pools. A key driver of the difference in speeds is the different incentives facing Ginnie Mae program servicers regarding loan buyouts on one hand and those facing the GSE’s on the other. In the first case, the economics of the transaction are often favorable for servicers with cash available to purchase loans out of pools while the GSE’s take a more balanced view of the interests of servicers and investors.

The key regulation driving GSE behavior in this regard is the September 30, 2020 statements by the Enterprises extending the timeframe for delinquent loan buyouts from four consecutive months to twenty four consecutive months[2]. While forbearance was not explicitly mentioned in these announcements, there is clearly a connection between this timeframe and that of the duration of the forbearance programs. For conventional loans that entered a plan prior to February 28 2021, borrowers have a maximum 18 months of forbearance available to them[3]. Since the biggest share of loans in forbearance took place in Q2 2020, that 18 month period is running out for many. As borrowers work with their servicers to consider their options, loan buyouts should start to pick up in coming months as distressed borrowers pursue loan modifications or enter into foreclosure proceedings. In addition, distressed borrowers with equity in their homes may choose to sell their properties, leading to a pickup in voluntary prepayments.