In a recent post, we noted that delinquency rates for two classes of FHA modified loans were rising faster than for the general population, namely reperforming (RG) and extended term (ET) loans. In this post, we dig down into details to get a closer view of the behavior of lenders in these categories.
We start with RG loans. As noted in the previous blog, the program was launched in January 2021, allowing borrowers who had outstanding unpaid balances from the Covid period but six consecutive months of payments to roll the balances into a “partial claim” due when the loan is extinguished. At that time, a new “RG” custom pool category was formed to issue these mortgages. Starting in February 2023, the seasoning period was reduced from six to three months and these loans became eligible to be issued in Ginnie Mae multi-issuer pools. The share of these loans in multi-issuer pools reached over 2/3 at the end of 2023. Delinquency rates are modestly higher for RG loans in multi-issuer pools relative to RG pools even though they are relatively new.
One topic that comes up is which servicers are most involved in this loan type and how much variation in behavior can be seen across these institutions. Below find the list of the top 15 institutions issuing RG loans and the distribution of each by pool type
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. 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.