Sometimes, future trends can be seen in the weeds. In this case it’s the 12 FHA and 1 VA mortgages (out of tens of millions) that were securitized this month in Ginnie Mae pool G2 CA8080, the very first RG pool, issued by PNC Bank, delivered to the GNMII20C program. This pool type was first announced by Ginnie Mae last December 4, and consists entirely of loans that were bought out of pools and cured with partial claims. These are eligible for resecuritization after 6 months without a missed payment. A previous announcement was made by Ginnie Mae last June that prohibited loans in forbearance from being bought out of pools and resecuritized into any existing pool type. This rule was enacted after large banks purchased a massive number of loans in forbearance and resecuritized them immediately, leading to concerns on the part of investors.
Is there anything interesting about these loans?
The loans were all originated in 2011-2013, so they are pretty seasoned. Note rates range from 3.75% - 4.25%. Underwriting characteristics vary considerably, with credit scores ranging from 533 to 829, for example. While original LTV’s are generally high (8/13 greater than 90) home price appreciation over the last 8-10 years likely implies that borrowers have considerable equity.
More of this to come as forbearance programs begin to run out later this year.
As we head into 2021, an ongoing issue is the disposition of loans in forbearance. The Cares Act allows for borrowers negatively impacted by the Covid-19 pandemic to obtain forbearance up to 1 year. This will begin to expire in Spring 2021, although an extension is possible as the new Administration takes over in January. A key point is that forbearance is not forgiveness. The mortgage agencies have provided options for borrowers who become current after forbearance, so they don’t have to make a lump-sum payment for missed principle and interest.
FHA has designated its policy regarding the disposition of suspended payment amounts as COVID-19 National Emergency Standalone Partial Claims(COVID Partial Claim).
“The COVID Partial Claim puts all suspended mortgage payment amounts owed into a junior lien, which is only repaid when the homeowner sells the home, refinances the mortgage, or the mortgage is otherwise extinguished.”
As we careen towards 2021, it’s getting to be time to look down from the top of the roller coaster towards the abyss below. The view is extremely hazy, but fortunately we have big data tools at our disposal to help clarify things. In mortgage space the single main question is what’s going to happen when forbearance expires. This program was designed to run out after a year, and that will be coming up starting next spring. If you are in forbearance and your time runs out, you have three choices:
Like all things related to mortgages, this is far more complicated than it appears. According to the Mortgage Bankers Association, 5.9% of mortgages are in a forbearance program. The NY Fed tells us that outstanding mortgages amount to about $10 trillion. So large numbers are involved.
The main market focus is on the distribution of outcomes when forbearance ends. This depends on a number of factors including the strength of the economy and the effectiveness of public health policy, as well as the financial condition of mortgage lenders and servicers. None of these are easy to predict.
One ongoing theme from these notes is that the COVID-19 crisis is resulting in policy actions that impact behaviors across the MBS production pipeline. One of these has to do with a change in the loan buyout policy from pools issued by the GSEs. Previously, general policy was to purchase loans out of pools that had become four months delinquent. However, with the onset of the crisis, delinquent loans in forbearance programs remain in pools as long as this status is maintained. Consequently, last week’s release of pool data by Freddie Mac gives us the opportunity to look at the share of loans that are 120D+DQ (as April was the first month in which the impact of COVID-19 became significant).
Besides allowing us to track the magnitude of loans that have been delinquent for an extended period, this data allows us to make inferences about shifts in the composition of the burden of covering P&I costs between sectors for loans in forbearance. As we have written previously, this cost burden shifts from the servicers to the GSEs after four months of missed payments. Consequently, starting next month servicers will see costs related to loans that have missed payments for such a period move off their plates and onto those of Fannie Mae and Freddie Mac.
Insofar as the volume of loans beginning to miss payments is less than those which have missed more than four months payments, the aggregate cost burden on servicers may fall. Consequently, upward pressure on the mortgage spread over Treasuries may have scope to ease.
Of course, these costs don’t disappear; they merely get transferred to the taxpayers. Another potential flashpoint in our volatile age.
 See, for example, Appendix D, p. 3 http://www.freddiemac.com/mbs/docs/single_security_update.pdf
 See p. 8 http://www.freddiemac.com/mbs/docs/single_security_update.pdf
Freddie Mac started to release forbearance data on its STACR CRT program in the July reporting cycle. Previously, the GSEs disclosed only pool-level delinquency and forbearance information . As the loans in the STACR program have a UPB representing over 50% of total deliveries to FHL balances with no obvious state level bias, they would serve as a representative sample in calculating GSE state level delinquency . Similarly, the new STACR data is helpful in assessing the impact of the COVID-19 crisis on forbearance at loan level.
From the July STACR data release, we can see a clear correlation between total delinquency rates and forbearance rates at state level. States with higher delinquency rates, such as New York, New Jersey, Hawaii, and Nevada, also have higher forbearance rates.
*The Chart can be duplicated using the above two queries
This is not a surprise as we noted in an earlier post that Freddie Mac servicers are not required to report loans in forbearance if loans are current . In fact, for STACR data, only 0.95% of current loans are in a forbearance plan, but the forbearance rate for loans in 30 day delinquency, 60 day delinquency, and 90+day delinquency are 30.64%, 92.98%, and 92.12 % respectively.
Two data releases Monday night paint a picture of hyper-kinetic refinancing activity and new deterioration in GSE credit performance. First, all three agencies released prepayment data for June showing record refinancings, led by Ginnie Mae programs which skyrocketed by over 10 CPR to 37! This is a much greater increase than experienced by both Fannie Mae (+3.4 to 30.9), and Freddie Mac (+3.2 to 32.0). A significant portion of GNM CPR’s increase could derive from elevated involuntary prepays (CDR), quite possibly driven by the very recent change made to GNM pooling rules regarding reperforming loans.
Earlier this month we discussed the new pool-level forbearance and delinquency data released by the GSE’s. At that time, we noted that the delinquency data looked reasonable for May, but that the forbearance data fell short of other reported measures, particularly for Freddie Mac.
The release of the Ginnie Mae loan-level forbearance data earlier this week enabled us to see the impact of the Covid-19 crisis on forbearance.
An immediate question is how this data relates to delinquency. We have commented previously that forbearance and delinquency are distinct concepts as borrowers may choose to enroll in a forbearance program as an option to stop paying their mortgage on short notice in the future. The pool level data released earlier this month by the GSE’s is not of high quality and showed forbearance rates less than those released from other sources.
The Ginnie Mae loan level data appears to be very accurate, and in synch with other reports. Within the category of forbearance loans, 27.9% of Covid related are still paying. The portion for not Covid related is 15.5%. This result provides confirmation that a significant portion of borrowers have availed themselves of the option to stop paying without exercising it yet.